Oil climbs to 7-year high, stocks fall
Russia is the world's third largest steel exporter
Russia and Ukraine contribute about 10% of global steel exports
EU and Turkey are the biggest importers of Russian steel/scrap respectively
Russia invaded Ukraine on February 24'22, alarming global leaders, pushing Brent prices above a seven-year high of $105/barrel.
It is clear that global trade dynamics will be rearranged and affect commodity flows, especially as Russia is the world's third largest exporter of steel after China and Japan, and Russia and Ukraine together control approximately 45 million tons (mnt).
According to data from foreign sources, Russia exported 30.30 mt of steel in 2021, up 13 percent year on year from 26.85 mt in 2020, while Ukraine's steel exports last year amounted to 15.26 mt, down 6 percent year on year.
The European Union is Russia's largest steel importer at 8.83 mnt in 2021, a sharp 58 percent year-on-year increase from 5.60 mnt in the previous calendar.
Iron ore, scrap, metallic and semi-products
For scrap and metals, the EU is the country most exposed to Russia. In 2021, the EU's share in Russia's total exports of scrap and metal was 2.19 mt, and Turkey's share was 2.66 mt.
Iron ore and pellet exports remained stable at around 25 million mt in 2021 and 2020. In billets, Russia has a significant overseas exposure of 15 million metric tons worldwide.
Ukraine, on the other hand, has a fair share of metal exports, with around 48 million mt (44.36 mt of iron ore and 3.18 mt of pig iron) in 2021.
Coal
Russia's coal exports totaled 214 million mt (196 million mt), up almost 9% compared to the same period last year.
How will the trade flow be affected?
The countries with the largest share in Russia's exports will be the ones most affected.
The European Union (EU) has taken a tough stance, saying Russia violated international law by recognizing Ukraine's non-governmental areas as independent entities. The EU has said it will impose a series of sanctions on Russia, including restricting trade with the two Russian-controlled regions in eastern Ukraine.
Additional sanctions expected
The EU, which is most exposed to Russian exports, will face supply disruptions and shipping delays in steel and related raw materials. Such a possibility will push him to seek other sourcing destinations, such as Turkey, which is geographically close, especially for steel.
Turkey and Mexico will also feel the warmth of being the second and third largest Russian steel importers with 4 mnt and 3.4 mnt respectively.
Scrap
Located at the top of Europe and Asia, Turkey is the world's largest scrap importer and the largest scrap buyer for Russia. Russia's scrap and metals are supplied by the USA, China, Belarus and South Korea, among others. If supply disruptions from Russia are seen, scrap and metal prices will spiral north, eventually making steel more expensive.
Natural gas
Russia may limit the sale of oil and gas to the EU at record high prices leading to temporary closures of steel mills and/or production cuts. Gas prices increased by 35% to 120 Euro/MWh in early trades on the TTF virtual platform. A total of 41.6 billion cubic meters of Russian gas crossed from Ukraine to Europe in 2021, accounting for about 10% of European demand.
Coal
Russia exports coking coal to South Korea, Japan and Ukraine with a volume of around 14 million tonnes seen in 2021 – about 45% of the country's total coal exports. With sanctions on Russia, these importing countries may now have to rely heavily on Australian coking coal, as imports from the US are more costly due to higher freight.
Meanwhile, China is preparing to return to the market after the holidays and the Games and is showing a strong interest in Russia's coal. It is also heard that Russia has increased its supply to China. However, the latter's steelmakers have well-stocked coke stocks, and demand will only come about as stocks decrease.
In the face of this ongoing geopolitical crisis with serious business consequences, it is difficult to say how long the disruptions in steel-related commodities will last.
However, if EU countries affected by gas supply and prices, as well as Russian imports, need more sourcing points, Indian producers can take advantage of it. Turkey can also increase India's resource use to feed domestic demand.
In general, more energy/raw material cost pressures will make steel more expensive.
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