Impact of Russia-Ukraine war on metals production and supply

As the world's economy prepared for the post-pandemic recovery, the beginning of 2022 presented some unanticipated challenges to the outlook for the world. Several commodities markets reached record or decade-high highs as a result of the convergence of the Omicron virus, growing inflation, and erratic moments of economic development. No market had, however, factored in the surprise Russian invasion of Ukraine and the ensuing effects on important markets, the disruption of the commodity financing sector, and the escalating geopolitical tensions. Since Russia's invasion, the biggest factors to the near collapse of equity prices are the forfeiture of the interconnected global economy, which depended on free trade, capital and labor mobility, and reduced geopolitical tension.

Markets are waiting to see if the Russian government will strike back by limiting exports of important raw commodities as severe international sanctions of previously unheard-of magnitude begin to hurt the Russian economy. Price increases under this scenario will be particularly pronounced in products where Russia is a major producer. Energy price increases have already put pressure on metal production, and this trend is expected to continue as more of the developed world weans itself off Russian-based energy and supply. Critical minerals like nickel, which is used in electric vehicle batteries, or PGMs (platinum, palladium, and rhodium), which are used in many crucial applications, such as catalytic converters, undoubtedly get more attention than vanity goods like diamonds, but the impact has been felt widely, including in potash, an indispensable component of fertilizer, which has a significant impact on food supply and inflation. Political attention will be drawn to this, and we anticipate a heated discussion about supply diversity and shortening supply chains.

Interruptions in Steel Production

In Ukraine, 90% of the steel facilities have stopped production, and many of them have been damaged or completely destroyed. For instance, Metinvest-owned Azovstal and Illich Steel in Mariupol, which together produce around 41% of the steel produced in Ukraine, are both seriously damaged. These plants might not return to their previous state even if the disagreement is resolved. For instance, if a blast furnace is demolished, an electric arc furnace (EAF) will likely take its place to cut down on carbon emissions.

Port destruction or Russian Navy blockades have prevented or hindered access for Ukraine to seaborne markets. Shipments over the sea have essentially ceased. Russian supplies have been impacted by Western sanctions. Russian and Ukrainian producers' rail operations are impacted, and sanctions have stopped or significantly decreased Russian shipments to Western Europe.

Significant sources of steel, iron ore concentrates, iron ore pellets, coal, merchant pig iron, merchant HBI, and merchant DRI come from both Russia and Ukraine.

The Middle East, North Africa, Turkey, and the United States are also impacted, particularly for pig iron, DRI, and HBI. In-house and independent steel rerollers can be found in Turkey, Italy, Bulgaria, and the United Kingdom. receive no slabs or billets. The cost of pig iron has significantly increased worldwide (920–950 USD/ton FOB SE Brazil).

Less reliance on Russian steel in the future?

Companies will either never return to dependence on Russia as a result of its invasion, or it will take a very long time. China will progress. Its steel industry is a national security industry in a government-controlled, centrally planned economy. The nation has set concrete goals for reducing pollution, modernizing infrastructure, and modernizing the mining industry, with a peak in carbon emissions by 2030 and carbon neutrality by 2060.

It is anticipated that China's steel production will stay roughly the same as in 2021 (1,033 million tons of crude steel). According to recent estimates, there will be a demand for 985 million tons of steel and a supply of about 1 billion tons. Due to its relatively contemporary blast furnace construction, China should continue to be an integrated steel manufacturer for the foreseeable future. However, it will also boost the output of electric furnaces. For the time being, COVID-19 restrictions and skepticism regarding the effectiveness of the stimulus packages are dampening market confidence in China.

For several years, we'll observe a trend in the consumption of greater iron ore grades in the Atlantic and China. Superior components are required if you desire green steel.

Because Metinvest and Ferrexpo in Ukraine are largely absent from the market, the price of pellets will remain high in the near future. The same holds true for the Russian Lebedinsky GOK. The Atlantic's pricing differential for blast furnace pellets is estimated to be $82 per dry metric ton, up from $65 per ton prior to the war. The cost difference between pellets from a blast furnace and pellets from a direct reduction furnace now prevents the necessary investment, particularly in new facilities. However, it is certain that the industry's drive toward producing green steel will encourage consumer demand for DR pellets.

U.S. scrap prices are either constant or declining. Prices for pig iron are high. Supplies from Ukraine and Russia have limited substitutes. 63% of the steel in the United States is imported from Russia and Ukraine. As previously noted, the FOB price for pig iron in Brazil has doubled, and it appears that all Brazilian factories are at capacity. DRI and HBI make things difficult. Lebedinsky GOK of Russia is excluded due to logistical, political, and legal ramifications. Maintaining a relationship with Russia will almost certainly cause issues with the United States. Justice Division.

The economy and the course of COVID-19 will determine what occurs in the United States. Concerns about inflation and uncertain interest rates exist (most likely to increase). The infrastructure program will have an effect on steel costs as well. The effects of globalization have been highlighted, not only by the war but also by the pandemic. A new paradigm may emerge, not just as a result of supply chain constraints but also as a result of rearmament, especially in Europe under the leadership of Germany, which has changed its long-standing defense strategies.

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