By Katya Bouckley 

January 22, 2022 - Ukrainian steel and iron ore producers consulted by S&P Global Platts reported their operations continued as usual in the run-up to Jan. 21 talks between the US and Russia aimed at defusing geopolitical tensions over Russia's military build-up on its border with Ukraine.

"I can confirm that our operations continue as normal," said a spokesman at Ukraine's largest iron ore pellet producer Ferrexpo. He declined to comment on the geopolitical tensions and any future event which may or may not happen.

"We all think it is information hysteria," said a source at one of Ukraine's main steel companies in the Dnepropetrovsk region, referring to speculation over a potential Russian invasion of Ukraine. The source added the company believes the military conflict is improbable, but to publicly say so is a little premature.

Russia has amassed an estimated 100,000 troops on the border with Ukraine.

Ukraine is a major steel and iron ore producer. In 2021 and 2020 it made 21.4 million mt and 20.6 million mt respectively of crude steel and was the 13th largest steel producer among 64 worldsteel-member countries. Normally, 80% of its steel output is exported. Over the same period, Ukraine exported 44.4 million mt (2021) and 46.2 million mt (2020) of iron ore products, making it the fifth largest iron ore exporter in the world.

The majority of sources surveyed did not believe in a worst-case scenario, but admitted that if this did occur, the impact would be felt across Ukraine's entire steel industry.

"It all depends on the scenario, but the majority of [steelmaking and steel raw material mining] enterprises could be affected as over 90% of them are concentrated in the east of the country, and if it comes to hostilities, they will first of all unfold in the east," said Yuri Dobrovolsky of Ukrainian Industry Expertise, a market research and consultancy company.

Ukrainian mining and steel company Metinvest declined to comment and a spokeswoman at ArcelorMittal Kryviy Rih steelworks said the mill does not comment on hypothetical suggestions.

Prices Firm on Strong Demand

So far the tensions have not directly affected steel prices, nor even market sentiment, according to Platts' analysis. Trading sources noted they had not heard of problems with production or shipment to or from Ukraine, and generally see the situation as not so bad as to cut off ties with Russia or Ukraine; they continue doing business with the CIS.

Regional flat and long steel prices have nonetheless risen in recent days on firm demand. On Jan. 19, Platts put its weekly hot rolled coil assessment at $775/mt FOB Black Sea, up $5/mt on week. Black Sea flat steel market sources reported a push by CIS mills to lift prices, but any notable price gains were yet to be confirmed in bookings amid resistance from buyers. Russian HRC export supply remained curbed due to strong domestic demand and lower output from one producer due to a rolling line revamp, sources said.

The weekly slab price was assessed at $592.50/mt FOB Black Sea, up $7.50/mt on week.

Platts' daily billet assessment was up $8/mt to $630/mt FOB Black Sea on Jan. 20, having risen as much as $12.50 since Jan. 17, with strong Egyptian demand seen as the main upwards driver.

Talks to Continue

Talks in Geneva Jan. 21 between US secretary of state Antony Blinken and Russian foreign minister Sergey Lavrov in a bid to avert further escalation of the Russia-Ukraine crisis ended on the understanding that dialogue between the US and Russia would continue. The BBC reported Blinken as saying that any invasion of Ukraine would bring "severe consequences" for Russia on the part of the US and its allies, while Lavrov reportedly said Russia had no plans to invade Ukraine but wished to address various security concerns, including Ukraine's potential membership of North Atlantic Treaty Organization (NATO). Russian-backed rebels have been occupying parts of eastern Ukraine for almost eight years.

Sanctions May Marginally Impact Steel Trade

Sources consulted believe that the effect on the Russian steel industry of any potential imposition of expanded US sanctions would be negligible because steel trade between the two countries is so small. Industry insiders believe the US would not go as far as to exclude Russia from the SWIFT banking communications system.

The Biden administration has signaled it is prepared to block the startup of the Nord Stream 2 gas pipeline from Russia to Germany and to impose harsh economic sanctions, including additional restrictions on Russia's energy sector, in the event of a Russian military escalation in Ukraine.

"Sanctions will target sensitive sectors, but I will be very much surprised if they will be extended to the steel industry. The volume of steel trade between the two countries is too insignificant," said a Switzerland-based steel distributor.

Over January-September 2021, Russia's export of steel in both semi-finished and rolled forms, including rails and pipes, was estimated at 22 million mt. Shipments to the US were less than 1% (up to 138,000 mt) of this volume, according to data published by the Eurasian Economic Commission, the regulatory authority overseeing the customs union between Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

In the first nine months of last year Russia also exported 2.7 million mt of direct reduction iron products, 2.3 million mt of steel scrap and 0.7 million mt of ferroalloys; none of these went to the US, but the latter absorbed 45% (1.3 million-1.4 million mt) of Russia's pig iron exports.

Russia's ferrous imports from the US in the reported period were even tinier: amounting to just over 1,500 mt of steel in various forms and 500 mt of ferroalloys, scrap, ferrous granules and powders, according to EEC.