Russian metallurgists are forced to work at a loss because of the war with Ukraine. Sanctions deprived domestic companies of access to the premium European market, the forced “turn to the East” led to too high logistical costs, and a too strong ruble collapsed the income of enterprises. Kommersant writes about this with reference to data from BCS Global Markets (BCS GM) analysts.
Only one company exports its products to profit - and that only for the reason that a small exception has been made for it in European sanctions. We are talking about the Novolipetsk Iron and Steel Works (NLMK) of billionaire Vladimir Lisin, which has maintained the supply of steel semi-finished products (slabs) to the EU. The import of these products from Russia to Europe is partially allowed - no more than 3.7 million tons can be supplied annually until 2024.
Import deliveries are unprofitable for Russian companies due to the too strong ruble exchange rate. Analysts note that for the supply of rolled metal, the break-even level begins at a rate of about 37% higher than the current one, that is, from 85 rubles per dollar. For iron ore suppliers, this bar is slightly lower, the required drop is estimated at 16%, to 72 rubles per dollar.
“In June-July, a number of ferrous metallurgy companies already recorded negative profitability, this applies to NLMK, MMK, Tula-Stal, Novostal-M,” Denis Manturov, Minister of Industry and Trade, said back in August.
Russian companies survive thanks to the Russian market, where profitability, according to experts, is about 30%. Over the past year, Russian metallurgists produced 65.9 million tons of steel products, of which 28.3 million tons (42.9%) were exported. In 2022, exports are expected to fall by 8-13%, the sanctions affected approximately 4.8 million tons of various metallurgical products. Analysts note that solutions to the problems of metallurgists are not yet expected, however, it will not yet be possible to find confirmation in the reports of companies: until the end of the year they are allowed not to publish public reports on their activities.
At the same time, the situation for metallurgists has become somewhat better than in summer, when a drop in revenue was recorded even in the domestic market. Then the companies complained about falling profitability in all market segments.