Where does Russian steel flow after 6 months of sanctions?

The Russia-Ukraine war significantly disrupted global supply chains. Ukrainian steel industry reduced production and lost access to most of the export markets. Russian steel industry, from one side, got the opportunity to increase supplies to traditional Ukrainian export markets. From other side, Russian steelmakers faced up different sanctions, which would have prevented supplies to the EU and US markets. After 7 months of war, we would like to find out which market trends concerning Russian iron & steel export prevail.

Such a level of sanctions against a big global iron&steel producer has never been seen in modern history, so changes in trade flows initially significantly affected world supply chains. But then the market had to find a balance. We expected the markets to be divided into low price markets (where there is Russian steel) and high price markets (where there is no Russian steel), implying that the markets with high prices are countries that have imposed sanctions (US, EU, UK, Canada, etc.). But to our surprise, in these markets, despite the sanctions, there is enough import of Russian steel.

Russia currently does not disclose export data, so our estimations are based on UN Comtrade imports data by country-reporter. These data may be incomplete, because not all countries disclose imports statistics. It may distort the results of the calculations. Anyway, imports statistics is the only source of public information about iron & steel supplies from Russia.

EU is the biggest importer of Russian pig iron. Imports from Russia even doubled in the first half of the year, and deliveries continued after the start of the war in Ukraine. In March 2022 EU imported 71 thousand tons of pig iron from Russia, in April – 144 thousand tons, in May – 148 thousand tons, in June – 75 thousand tons. EU imports of pig iron from Russia increased by 2.5 times y-o-y in the second quarter.

87.6% of Russian pig iron in the 2^nd quarter of 2022 was imported by Italy (366 thousand tons). In this period Italy increased imports from Russia by almost 4 times y-o-y. Italy was large pig iron importer from Ukraine and in 2022 these supplies were replaced by imports from Russia.

Other importers of Russian pig iron in EU are Spain, Poland, Netherlands. In the 2^nd quarter of 2022 Spain imported 22 thousand tons of pig iron from Russia (2 times higher than a year ago), Poland – 17 thousand tons (-41.0% y-o-y), Netherlands – 13 thousand tons (-10.6% y-o-y).

EU also remains the major importer of Russian steel semi-finished products. Inside EU, the biggest semis importer from Russia is Belgium – 660 thousand tons in the 2^nd quarter (52% from total import in EU in physical units). Moreover, Belgium increased imports of pig iron from Russia by 70.5% y-o-y in the 2^nd quarter of 2022. Other importers of steel semi-finished products from Russia include Czechia (65 thousand tons in the 2^nd quarter of 2022, +179.7% y-o-y), Denmark (187 thousand tons, +7.2%), Italy (195 thousand tons, -32.1%), Poland (114 thousand tons, +21.7%). Deliveries of semi-finished products continue to countries that traditionally import semi-finished products from Russia. EU imports of pig iron and steel semis from Russia continue as there is no direct ban on these supplies.

Since 1 April 2022 EU prohibited imports of rolled steel products and pipes from Russia. This ban provides a three-month transition period to wind down existing contracts. During this period imports from Russia is possible, but we see decreasing supplies. For example, in the 2^nd quarter of 2022 imports of long products from Russia reduced by 8.8% y-o-y and imports of flat products decreased by 86.3%.

USA did not import pig iron from Russia in April and June 2022, although in the remaining months of the first half of the year, imports was observed. Quite similar situation with imports of steel semis – USA did not import them in March and May, although in the remaining months of the first half of the year, imports was registered. So, supplies of Russian pig iron and steel semi-finished products to USA continue, although their volumes significantly decreased.

In May 2022 USA stopped imports of steel flat products from Russia. Growth in imports of Russian flat products in the first half of the year is due to high volumes of supplies in the 1st quarter. In the 2^nd quarter of 2022 imports of Russian flat products to USA decreased by 96.3% y-o-y.

Turkie expectedly increased imports of Russian products in the first half of the year: pig iron – by almost 3 times y/y, steel semi-finished products – by 26% y/y, long products – by 27% y/y. In the same period China and Egypt raised imports of semis from Russia by 62% y/y and 17 times y/y respectively.

Russia also has stepped up trade with the countries of Central Asia. In the first half of 2022 Uzbekistan raised import of flat products from Russia by 38% y/y and Kyrgyzstan increased import of flat and long products by 3 times and 38% y/y respectively.

Thus, deliveries of Russian steel products to the world market continue, although in the first half of 2022 total steel exports from Russia decreased, in particularly, semi-finished products – by 5.5% y/y, long products – by 20.5% y/y, flat products – by 44.7% y/y.

It seems that the sanctions period is a good time for traders and logistics companies. It is they who deals with problems of price imbalance and shortage in certain markets. The market always finds a balance, but the first half of the year showed that the EU and the US were not forced to make up for the lack of Russian steel. The rivers of Russian steel have not changed much in the direction of their flow.