Seasonal construction activity in June supported modest inventory replenishment, while government infrastructure projects provided additional demand. This resulted in localized shortages of hot rolled coil, allowing domestic HRC prices to increase by approximately 6% during the second quarter. Although demand remains weak by historical standards, the market appears to be moving toward a new equilibrium after an extended period of decline.
Domestic Demand Remains Constrained
High borrowing costs continue to be the main obstacle to a broader recovery. Despite several interest rate reductions, financing conditions remain restrictive enough to discourage new investments across construction, machinery manufacturing and the oil and gas sectors. Most companies continue to postpone expansion projects and focus only on essential operations.
Market participants increasingly believe that 2026 could represent the bottom of the current cycle. However, any meaningful recovery is expected to depend on a substantial reduction in interest rates, which many analysts do not anticipate before late 2027.
Demand growth is currently concentrated in government-funded infrastructure projects, including railway modernization, high-speed rail development, energy infrastructure and pipeline construction. These projects generate isolated pockets of steel demand but have not yet translated into broad-based market recovery.
Steel Production Continues to Contract
Production data for June confirmed that Russia's steel industry remains under structural pressure despite some month-on-month improvement.
According to preliminary data published by Corporation Chermet, Russian producers manufactured:
- Iron ore: 8.6 million tonnes in June (51.3 million tonnes in H1 2026)
- Coke: 1.8 million tonnes (10.8 million tonnes in H1)
- Pig iron: 4.0 million tonnes (24.2 million tonnes in H1)
- Crude steel: 5.6 million tonnes (32.3 million tonnes in H1)
- Finished rolled products: 5.0 million tonnes (28.7 million tonnes in H1)
- Steel pipes: 0.8 million tonnes (4.3 million tonnes in H1)
Compared with the first half of 2025, production declined across all major product categories:
| Product | H1 2026 YoY |
|---|---|
| Iron ore | -4.3% |
| Coke | -6.9% |
| Pig iron | -6.1% |
| Crude steel | -6.7% |
| Finished steel | -13.1% |
| Steel pipes | -23.0% |
Although June production improved compared to May in most segments, annual trends remain negative, particularly for finished steel and pipe products, which remain highly dependent on domestic demand.
Product Performance
Russian rolled steel production totaled 4.9 million tonnes in June, down 0.5% month-on-month but marginally higher (+0.4%) than June 2025. Output reached 27.2 million tonnes during the first half of the year, representing a 6.6% annual decline.
Semi-finished non-alloy steel was the only segment showing notable strength. Production reached 5.0 million tonnes in June, up 9.5% year-on-year. However, first-half output still declined by 4.4%, indicating that one month of stronger activity has not offset the broader slowdown.
Alloy steel remained the weakest performing segment, with June production falling nearly 30% year-on-year to 900,000 tonnes. First-half production totaled 5.9 million tonnes, down 19.2%, highlighting the continued weakness in investment-driven industrial demand.
Other major products also remained under pressure:
- Pig iron production reached 4.0 million tonnes in June, down 2.6% year-on-year.
- Iron ore concentrate production declined to 7.5 million tonnes, down 5.3% month-on-month and 5.3% lower during the first half.
- Steel pipe production recovered 13.1% from May but remained 5.6% below June 2025, while first-half output declined by 22%.
- Stainless steel production reached 23,500 tonnes, the highest monthly level this year, although cumulative output remained well below 2025 levels.
Overall, production data suggest that the industry is no longer experiencing a rapid decline but has instead entered a period of prolonged adjustment characterized by lower demand, tighter financial conditions and cautious production planning.
Corporate Performance
The operating environment was reflected in Severstal's first-half financial results. The company increased steel sales by 4% year-on-year to 5.66 million tonnes, supported by a 69% increase in pig iron and slab shipments and a 5% increase in commercial steel sales.
However, sales of higher value-added products, including coated steel, large-diameter pipes and wire products, weakened as major industrial and construction projects remained on hold. As a result, the product mix shifted toward lower-margin semi-finished products.
Despite higher shipment volumes, Severstal's financial performance deteriorated significantly. Revenue declined by 14% year-on-year, EBITDA nearly halved and net profit dropped by 89%, illustrating the industry's ongoing margin pressure.
Raw Materials
July saw an unexpected surge in Russian metallurgical raw material prices despite weak downstream steel demand.
Russian coking coal prices increased by 21-31% during the month, marking one of the sharpest monthly increases in recent years. Export prices strengthened considerably, reaching approximately $156/t FOB Far East, almost 60% above year-earlier levels, while western export prices rose to around $123/t FOB Gulf of Finland.
Higher export profitability encouraged producers to divert volumes toward overseas markets, tightening domestic supply. At the same time, steel producers temporarily increased operating rates before scheduled maintenance shutdowns, creating short-term supply shortages.
The increase extended across the raw material supply chain:
- Scrap prices rose by approximately 14% to RUB 21,500/t, the highest level since 2025.
- Hot briquetted iron, silicomanganese and zinc concentrate prices also recorded notable gains.
Nevertheless, the increase appears to be driven primarily by temporary supply constraints rather than a sustained improvement in steel demand. Analysts expect blast furnace maintenance during August to reduce steel production and ease raw material demand, potentially limiting further price increases.
Export Environment
External conditions remain challenging for Russian producers. A relatively strong ruble continues to reduce export competitiveness while simultaneously making imported steel more attractive in certain domestic markets, particularly in Russia's Far East.
At the same time, Chinese steel exports continue to exert pressure on global prices, limiting opportunities for Russian mills in international markets. Rising accounts receivable, subdued private-sector investment and limited access to affordable financing continue to weigh on the industry's outlook.
The Russian steel industry appears to have reached a stabilization phase rather than the beginning of a recovery. The sharp declines recorded earlier in the year have moderated, but the market continues to operate under structurally weak demand, high financing costs and compressed margins.
Government infrastructure spending is providing selective support, while seasonal construction activity has helped stabilize inventories. However, these factors remain insufficient to generate a broad-based recovery in steel consumption.
The outlook for the second half of 2026 will largely depend on monetary policy, investment activity and the sustainability of government-funded infrastructure projects. Until financing conditions improve and private investment returns, the industry is expected to continue operating in a low-growth environment with cautious production levels and ongoing pressure on profitability.
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