Invasion halts Ukraine steel shipments; appetite wanes for Russian steel

Several steel plants in Ukraine, including those of pipemaking group Interpipe and the Azovstal and Ilyich mills in Mariupol, both part of Metinvest, have stopped producing and shipping, trade sources said.

Interpipe confirmed to Platts that it stopped production and shipping in early-Feb. 24 as soon as the strikes began.

Metinvest and ArcelorMittal said they were significantly reducing their steel production, hampered by the suspension of rail freight services and closure of several ports. ArcelorMittal Kryvyi Rih, Ukraine's largest integrated steel company located in Kryvyi Rih city, "is working to slow down production to a technical minimum" and production will be stopped at its underground mines, according to a statement issued by ArcelorMittal from London.

"We do not understand how supply chains are now operating in the country," said a source at a steel mill. "At the moment, we perceive it as a risk to ship products by road. Consignments may get stuck or abandoned," said the source, adding that transportation contractors are calling off truck drivers.

Traders said a missile attack from Russia took place on military facilities in the Sea of Azov area and that an increase in freight rates is expected from the Black Sea -- where shipping was said to be still operational -- due to risk insurance.

The Odessa port was declared closed by port authorities.

According to a Turkish government spokesperson, no decision has been taken on closing Russia's access to the Bosphorus and that possible scenarios around the Montreux Convention, which gives Turkey control over ships passing through the straits, are under consideration.

Ukraine is the world's 13th largest producer of steel and fifth largest exporter of iron ore by volume. It produced 21.4 million mt of crude steel in 2021. About 80% of its steel output is exported.

The country exported 44.4 million mt of iron ore products in 2021 and imported 9.85 million mt of metallurgical coal and coke products. It raised 3.9 million mt of steel scrap, of which 616,000 mt were exported.

Ukraine sends steel to the Middle East, Turkey, the EU, Africa and the Americas.

Sanctions can stall Russian purchases

The appetite has already waned for Russian steel with tougher sanctions announced or expected from the EU, the US and other countries. The Russian mill source saw as a real possibility customer refusal of deliveries from the country.

"We are operating in a zone of uncertainty," the source said. "The port of Novorossiysk -- the ships are loading -- but I don't know what to do next, the situation is difficult."

In 2021, Russia made 76 million mt of steel, exporting around 40 million mt. In addition to numerous Atlantic buyers, China has recently become one of the biggest customers of Russian steel.

To Asia, Russian steel exports have mainly taken the form of billet in recent weeks.

News of the latest developments has dampened Asian demand, with a trader in Manila saying that rerollers in the Philippines would stop buying Russian and Ukrainian billet to avoid any potential risks.

Russia was the top non-Asian supplier of billet to the continent in 2021 by deal count, after Vietnam and Indonesia, having concluded 56 deals, compared with 72 and 63 by Vietnamese and Indonesian suppliers, respectively, according to spot data compiled by Platts.

Russian billet was sold mostly to the Philippines. While shipments via the Black Sea port of Novorossiisk appear to be unimpeded for now, and would likely be unscathed logistically out of the Russian Far East ports, sanctions on Russian banks involved in financing trades could scupper deals.

One Russian mill has stopped making offers to Asia "due to the impact of the bank issue," an eastern China-based trader said.

Offers for Russian 5SP 130 mm billet were unchanged on the day at $715/mt CFR Manila for April shipment, two traders said, although higher offers at $720/mt on Feb. 22 were no longer available Feb. 24.

The Platts Feb. 24 assessment for billet of the specifications above slid $2/mt on the day to $708/mt CFR Manila.

Other market participants said China-based buyers could import more semi-finished steel from Russia if sanctions are widened, also as Chinese steelmakers seek to adhere to more stringent regulations concerning carbon emissions.

In the hot-rolled coil market, Russian mill MMK has been a key supplier to Asia, but has been absent from the spot market since mid-October 2021, when its last deal for early-February shipment was tracked, Platts data showed. Those cargoes would have already arrived in Vietnam.

MMK would return to offering in the middle of March for May-shipment cargoes, customers of the mill in Asia said.

Financing issues

International banking sanctions announced prior to the invasion had not impacted those that finance metallurgists, the Russia mill source said. "The main settlements are with other banks ... we are reassuring customers," the source said.

"There is already a recommendation from our risk management to convert all contracts into other currencies. Some companies are already starting to do it. I think this will be the first step for Russian companies if the US decides to restrict access to US dollars," the source said. "Swiss franc or euro are considered and even others, shekels, Emirati dirhams."

Russian news portal RBC reported that VTB, the second largest bank in Russia, has sent a letter to corporate clients recommending that they temporarily do not conduct any transactions in dollars and euros.

VTB was among banks targeted by new sanctions announced by US President Joe Biden late-Feb. 24.