Christopher Rivituso | Posted on February 3, 2022 |

An invasion of Ukraine by Russian armed forces could negatively impact Novolipetsk Steel’s (NLMK) export sales, due to possible sanctions by Western nations, one industry watcher told MetalMiner on Jan. 31. Steel distributors in Europe have become hesitant about what an invasion could mean in the event that they purchase steel from NLMK, the analyst added. This could be part of the reason that European steel prices have stabilized. “Many clients are looking at this from a risk-management perspective,” the source said. The comments came as NLMK announced on Jan. 20 that its consolidated sales volumes came to 16.6 million metric tons, reflecting a 5.1% decrease on the year from 17.5 million metric tons. What an export shortfall could mean for the US market From that volume, one-third or 5.2 million metric tons went to end-users in export markets. This represents a 22.4% decline from the 6.7 million metric tons exported in 2020. In that year, the market saw higher steel consumption in Russia as well as in the United States, where the group has two assets. Furthermore, this includes slab to NLMK’s US reroll facility. Without an alternative slab source for the U.S. market, this could impact the entire amount of available tons for the US domestic steel market.  Though this shortfall may not create a “true shortage,” from an actual tonnage perspective,  emotional buying often trumps reality. At the end of the day, it’s about the  supply constrained narrative.  Geopolitics could impact NLMK’s largest export markets  Besides Russia, NLMK’s first and second sales markets in 2019 included the European Union and the United States. After that,  biggest export markets include the Middle East/Turkey, data from the group noted. The United States, Britain and several West European countries have warned of severe sanctions against Russia in the event that its forces move into Ukraine. Fears of an invasion started in late 2021 when the buildup of troops, estimated at 125,000, and heavy weaponry arrived at Ukraine’s border. Russian troops also arrived into Belarus in January, which borders Ukraine to the north, ostensibly for military exercises with Belarusian armed forces. One of the reasons for the buildup of troops is Russia’s opposition to further eastward expansion by the North Atlantic Treaty Organization (NATO), a military alliance between 30 member states, 27 of which are European while Turkey is also a member. The United States and Canada also belong to NATO. Russia seeks security guarantees that neither Ukraine nor Georgia would join the alliance. It also wants NATO to withdraw from several current members, including the Baltic states of Estonia, Latvia and Lithuania, along with Poland and Hungary. Talks are taking place between the United States and Russia to find a diplomatic solution, though US officials have described Russia’s NATO demands as a “non-starter.” Sanctions and metals markets Sanctions against Russia, in the event that it invades Ukraine, might not directly impact NLMK’s assets abroad. However, the restrictions could potentially extend to metals exports and lead to closure of Western ports to Russian ships, the first analyst warned. That would, in turn, make NLMK unable to supply slabs as feedstock to its assets in the United States and in Europe. The following rundown of NLMK facilities highlights the global footprint of the company and markets/products that could be impacted. NLMK capacity utilization across all assets

The Takeaway Though many industrial buying organizations consider the steel market as more regional than say aluminum, (after all, most companies like to buy steel within a 325 mile radius of their manufacturing facilities), almost no commodity remains immune to geopolitics. A Russian invasion of the Ukraine would impact buying organizations that have existing supply contracts with NLMK, and as suggested, those that don’t could see the availability of steel in both the US and European markets impacted. As the old adage goes, buyer beware!

Filed under: Ferrous Metals, Global Trade, Imports

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