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The Russian exception: market activity despite Covid-19
Apr 28,2020 15:26CST
smm insight
Source:Metalshub
Amid Covid-19, the outlook for the Eurozone remains bleak with quarantine measures leading to a paralysis of production, supply chains and a majority of steel mills being shut down. At the end of last week, most European car manufacturers halted production and work on construction sites has ground to a halt as workers have been sent home. Amidst this chaos, Russia appears surprisingly resilient, that is for now.

Amid Covid-19, the outlook for the Eurozone remains bleak with quarantine measures leading to a paralysis of production, supply chains and a majority of steel mills being shut down. At the end of last week, most European car manufacturers halted production and work on construction sites has ground to a halt as workers have been sent home. Amidst this chaos, Russia appears surprisingly resilient, that is for now.


The country remains one of the few regions in the world to maintain a steel and ferroalloy consumption not far off levels before the crisis. According to Worldsteel data, the Russian steel production this year, fell by only 1% year-on-year in January-March. In CIS countries as a whole it fell by 0.5%, while European steel dropped by 10.3%. It is expected that this will lead to a major re-shuffle of production, logistics and operations, exposing steel producers in Europe and the USA to high risk for demand falling flat.


Looking at the dynamics of the world economy and trade, industrial experts and analysts are expecting significant losses for the global steel industry. Ferroalloy suppliers are already looking at alternative markets to offset lacking demand by long-term contract buyers during the period of April-June (i.e. the period of the projected maximum decline).


A number of Russian steelmakers have told Metalshub that their production facilities are currently operating at roughly the same mode as before, while quarantine measures have only affected administrative staff, which have been confined to remote work from home. ´Our plants are still working, there are no plans to reduce production, although we are reviewing our strategy in case of a worsening situation with the spread of the coronavirus in Russia´, said a representative of one of the largest producers of flat products in Russia. Russian tube and pipe producers also do not plan to reduce production, despite the unfavourable situation on the global oil market.


However, the pressure on oil markets have the potential of infecting the health of Russia's financial sector and subsequently may impede steelmakers from purchasing ferroalloy. Following the collapse of the OPEC+ countries deal in early March, world oil prices, already squeezed by the global macroeconomic downturn, collapsed to an unprecedented level since 1991 by more than 30%. On a downward spiral, the Russian ruble then collapsed by 25% against the US dollar, making imports of ferroalloys extremely expensive. Consumers point out that the main problem was not linked solely to the exchange rate collapse, but rather to its extreme volatility which exacerbates the risk when concluding new contracts for ferroalloy imports. According to industry analysts, annual imports of ferroalloys by Russian metallurgists reach 0.2 mt annually, mainly from European countries. Manganese metals imports are at 60 thousand tons, the lion share of which is shipped from China. Considering the health of other surrounding markets and economies it remains to be seen how long-lived this Russian resilience is.

 

 

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