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The Russian steel industry was hit hard by the economic crisis through plummeting demand in both domestic and export markets. Weakening share prices reflected an uncertain future and the end of a bullish period for the industry. But crisis is not an unfamiliar word in Russia and a vast majority of metals and mining executives have experience of similar times from the previous decade.
The turbulent nineties saw the industry develop out of the ashes of the Soviet system and emerge from the shock of the 1998 economic crash. These traumatic events created healthy level of cynicism about the fragility of markets, but also equipped the Russian industry well, psychologically at least, to tackle the current economic woes.
“We are used to crisis here,” a number of Russian industry sources told MB on a recent visit to Moscow. “We have had them before.” It was less “end of an era” and more “here we go again”.
The experience of previous crises doesn’t make this one any less severe, but it does mean the industry has more idea of what to expect when the dust settles. Russia is already seeing some its most powerful metals and mining magnates suffer huge financial losses, threatening the positions of some of the industry’s longstanding oligarchs. The end-game will likely see the emergence of some new personalities and the demise of some familiar faces.
Companies have clicked back into survival mode with competition heating up for the remaining domestic business and dwindling export opportunities. Key domestic steel-consuming industries such as automobile manufacturing, construction and machine building have downturned severely. The forest of static cranes in Moscow provides a highly-visible reminder of the crisis and most car factories are producing at a fraction of previous months. The Russian steel industry’s increasing exposure to the domestic market has been reversed as a result, with the emphasis again on exports.
Competition is no less fierce between Russia’s wide community of steel stockists and traders. “It’s a bloodbath out there at the moment,” the head of one of the top five trading houses recently told MB. The back of last year saw a frantic period of selling when stockholders offloaded as much material as possible to recoup come profit before the bottom of the market arrived. Most subsequent buying activity has been as much about cautious re-stocking as actual demand. But lack of available credit continues to be the main impediment to business in the trading sector.
Steel companies are now hastily changing their strategies and working out how to remain competitive during a difficult period. Companies with a focus on Russian strategic infrastructure projects such as the forthcoming Sochi Winter Olympics or the construction of oil and gas pipelines can count on relatively stable demand, but others are facing a more precarious future.
Most capex plans have been shelved or downgraded and companies that have already invested in raising quality and product diversity may reap the benefits in an environment of increased competition.