Steel turned out to be on the verge of profitability

Transportation of metals for export sank sharply in September, when the effect of sanctions and a strong ruble was added by falling prices on world markets, which made long-distance transportation of metals to the east prohibitively expensive. Market participants say that in this direction the transport component reaches 30% of the final price at a rate of 10%. Metallurgists and Russian Railways are discussing discounts from the tariff, but for this it is necessary to guarantee the volume of transportation, but for now the participants can only guarantee their decline.

Loading for the export of ferrous metals in September decreased by 42.7%, said Alexei Shilo, Deputy General Director of Russian Railways, on October 3. In general, according to him, this year the dynamics of exports compared to last year was negative. “This month, according to our marketing research, it has also been added that transportation in the eastern direction, which was previously actively used by metallurgical companies, for which the western direction was closed, began to be carried out in a much smaller volume due to the fact that prices for our products make it possible to cover such transportation costs,” says Mr. Shilo. “b”) of a tariff class for a distance of more than 9 thousand km for some goods, of course, it is expensive to carry. Given the high price of the metal, this is probably still expedient, but at the current price, colleagues believe that this is not economically viable.”

According to Kommersant’s interlocutor in the industry, this year NLMK and Severstal began to carry their cargoes to the Eastern Range, with an average range of more than 9,000 km: they transported more than 480,000 tons and more than 210,000 tons in eight months. tons, respectively. Of those metallurgists who previously worked at the Eastern Test Site, Norilsk Nickel significantly increased its shipments by 380 thousand tons to almost 2 million tons, with an average range of more than 10.5 thousand km. Rusal increased loading by 47%, which, however, has a range of more than half as much as Evraz, which used to ship a lot in this direction, and this year it increased shipments by 3%, to over 4.7 million tons.

Metallurgists, notes Mr. Shilo, are actively working with the government on the issue of subsidizing transportation.

“The main deterrent is that steel companies are not ready to guarantee volumes,” which is one of the main conditions for granting a discount for Russian Railways, he explains. According to him, Russian Railways has received a proposal from five metallurgical companies to issue discounts, now the decision has been made only on one of the requests for transportation in the direction of the ports of the Azov-Black Sea basin.

Kommersant’s interlocutors note a decline in steel prices in Asia in September. Some Russian metallurgists were selling at $598 a ton FOB China this month, up from $618 in August, according to a steel company source. The strengthening of the ruble also exerts pressure. According to another Kommersant source, for enterprises that are part of Russian Steel, back in the summer there were precedents for negative profitability in exports, which reached -49%.

The transport component, more than half of which is accounted for by the railway tariff, has grown to 15-20% of the final sale price, while the norm for metals is 10%. For deliveries to the East, it reaches up to 30%.

Kommersant’s interlocutor in the industry says that metallurgists are calling for discounts. “We consider it more expedient to provide discounts not only to the eastern direction, but also to the Azov-Black Sea basin and the North-West, which will allow shippers, if there are problems, to balance cargo flows and remove them from limiting directions,” he says. As for the guarantee of volumes, everything depends on the enterprises and specific areas of export. “Now metallurgists are ready to guarantee exactly that without discounts, volumes will only decrease,” the interlocutor of Kommersant assures. In a number of cases, he adds, enterprises are ready to guarantee volumes, but Russian Railways “takes an extremely long time to decide on discounts, as a result of which the volumes that enterprises were ready to guarantee have already been partially reduced, which is not taken into account by the monopoly when making decisions.”

The decline in exports of ferrous metals is due to a number of factors, says Boris Krasnozhenov from Alfa-Bank. The FOB China price of hot-rolled steel is now at $560-570 per ton, which is 35% lower than the February peak of $890 per ton. The strengthening of the ruble and general production inflation have led to an increase in the cost of steel production in Russia: for hot-rolled steel, it can exceed $400-450 per ton. “Taking into account the increased transport distance and possible discounts when selling Russian rolled products, the profitability of export sales looks quite low. There is also a general weakening of demand for steel in Asia: July and August are traditionally the slowest months in terms of construction activity in the region,” says Boris Krasnozhenov.

Natalya Skorlygina, Evgeny Zainullin