The Russian steel industry is bracing for a substantial downturn in 2024, with industry leaders forecasting a more severe decline than initially anticipated. Severstal, one of Russia's largest steel producers, has revised its market outlook, suggesting a 5-7% reduction in steel consumption, a significant shift from the earlier projected 1-2% decline at the start of the year.
The construction sector, traditionally the backbone of steel consumption in Russia, has experienced a particularly sharp decline. According to Severstal CEO Alexander Shevelev, the industry witnessed a concerning 9% downturn in the third quarter of 2023. This decline is primarily attributed to the Russian Central Bank's aggressive monetary policy, which has resulted in elevated interest rates, making construction financing increasingly challenging.
The situation has created an unusual dynamic in the Russian business environment, where small and medium-sized enterprises are finding it more profitable to park their funds in bank deposits rather than invest in business operations. The high interest rates have made bank deposits increasingly attractive, with returns sometimes exceeding the profitability of traditional business operations, leading to reduced industrial activity.
The Russian Steel Association, representing the country's major metallurgical companies, has presented an even more pessimistic forecast, predicting a 6% decrease in domestic steel consumption for 2024. This projection reflects the continuing decline in metal consumption observed throughout the third quarter of 2023, indicating a broader industrial slowdown.
The World Steel Association has taken a more moderate stance in its October outlook, projecting a 1% year-on-year contraction in Russian steel demand to 44.2 million metric tons for the current year. This global perspective suggests that while the decline is significant, it may not be as severe as domestic industry leaders anticipate.
The current market conditions have created a complex challenge for Russian steel producers, who must navigate reduced domestic demand while dealing with international trade restrictions. The situation is further complicated by the limited refinancing options available to construction companies and industrial consumers, creating a ripple effect throughout the steel supply chain.
The impact of this downturn extends beyond the steel industry itself, affecting related sectors such as mining, transportation, and manufacturing. The reduced demand has forced steel producers to reassess their production schedules and investment plans, potentially leading to longer-term structural changes in the Russian steel industry.
