According to a report in Bloomberg, the global steel market is experiencing significant turbulence, largely driven by waning demand from China, the world's leading consumer and producer of steel. Despite this widespread downturn, Russia's steel industry stands out as a notable exception, demonstrating resilience and growth amidst global economic uncertainty. This resilience is largely attributed to the Kremlin's ongoing war economy, which has stimulated domestic demand for steel through increased infrastructure and residential construction.
The conflict in Ukraine, initiated by Russia's invasion, has inadvertently bolstered the Russian steel sector. This war economy has stimulated substantial growth in the Russian construction industry, which saw a 3% increase in activity this year. Major projects, such as the completion of 2 million square meters of residential properties in Moscow, the construction of new underground stations, and the development of the National Space Center, have driven up demand for steel. As a result, Russian steel prices have risen by 5% to 20% in 2024, according to BCS analysts, with first-half demand increasing by almost 6%.
Russian steel producers, including Severstal and Magnitogorsk Iron & Steel Works, are reaping the benefits of this domestic boom. Severstal, under the control of billionaire Alexey Mordashov, reported a 6% increase in first-half earnings before interest, taxes, depreciation, and amortization, with revenue jumping by over 20%. Similarly, Magnitogorsk has seen substantial gains despite being under Western sanctions. The relative insulation of these companies from global market fluctuations has shielded them from the negative impacts experienced by their international counterparts.
The global steel market, by contrast, remains under significant pressure. ArcelorMittal, the world’s largest steelmaker outside China, has expressed concerns over the "unsustainable" market conditions, noting that prices in Europe and the US are falling below marginal costs due to a flood of Chinese exports. This oversupply has driven global rebar prices to multi-year lows, further exacerbating the challenges faced by steel producers in these regions.
One notable exception to this trend is Novolipetsk Steel, a major Russian steelmaker that has not been sanctioned by the US or EU. While it remains exposed to global market weaknesses due to its sales to Europe, Novolipetsk's performance is still somewhat insulated compared to its sanctioned counterparts.
Despite these positive developments, Russia's steel industry is not entirely immune to global economic forces. The country faces payment challenges with China and other trading partners, exacerbated by the expansion of US secondary sanctions against overseas banks in June. Additionally, the potential for higher interest rates could dampen economic growth and steel consumption in the future.
