Russian steel suppliers search for export opportunities to bypass sanctions, sources say

Steelmakers in Russia have been searching for export opportunities with countries that do not support Western sanctions, sources told Fastmarkets on Wednesday March 9

Exporters are also trying to find alternative shipping methods because some freight companies avoid the Black Sea - the key route for steel and raw material shipments from Russia.

“The situation on the export market is complicated, but issues can be managed because a lot of countries do not support sanctions, and there are banks in Russia that are not under sanctions, although a lot of buyers and freight companies are on pause [from dealing with Russian companies].“ one supplier from Russia said.

Russian steelmakers are already fully booked and can handle a minimum of one month without shipping from the Black Sea, a steel trader based in Russia said.

“Demand in the Middle East and North Africa region is strong. Asian demand is also good, and deliveries to Asia are not made from the Black Sea,“ he added. “Russian exporters still are able to sell to the Commonwealth of Independent States countries such as Kazakhstan, Turkmenistan, etc, but the key share of their sales goes to the local market.“

Export opportunities are essential for the Russian market because mills need to sell excess capacity abroad so as “not to flood the domestic market,“ a source who distributes steel products in Russia said.

Traditionally, Russia exports about 40% of its steel output.

“Suppliers are saying that everything is going well with exports, but it doesn’t look convincing, because everyone understands that it is complicated to redirect trade flows in one week or one month,“ the source who distributes steel products in Russia said. He noted that there are difficulties in payments in foreign currency and to Swift [entities], as well as issues with transportation inside and outside of the country.

The railroads and infrastructure of ports, especially in far-eastern Russia - from where mills ship to Asia and potentially may redirect tonnages from the Black Sea and the Baltic Sea - are not designed for quick trade flow changes and are already extremely busy, the source explained. There are also difficulties with chartering vessels; with the ability of vessels to come to ports due to sanctions at the Novorossiysk port; and with freight insurance.

“Insurance for the ships passing the Black Sea is a challenge; it is not impossible, but some companies avoid it, and some charge high costs,“ the Russia-based steel trader said.

He also said Russian steel exporters could opt to ship from the Sea of Azov. But large tonnages can’t be loaded on vessels there because there are no deep-water port facilities, Fastmarkets understands. Sources noted that the port at the Sea of Azov is already busy.

The trader also said Russian exporters could choose to ship steel products to Turkey via trucks through Georgia and Azerbaijan. But a source in Turkey said freight costs for this means of transportation would be much higher than via Black Sea ports and would “kill the trade effectiveness.“

“I do not think anybody will risk dealing with material flow from Russia,“ the source in Turkey said. “Previous orders for shipments might continue; however, agreeing new bookings and opening letters of credit seems very dangerous.“

Said a trader from Egypt: “Egypt will not buy Russian material - everyone is expecting that more sanctions can hit at any point. There was an incident when wire rod from Makiivka Iron & Steel Works [a long-steel mill in Ukraine’s Donetsk region that was seized by pro-Russia rebels in 2017] was sold to Egypt and got [held up] in the port authority as manipulated-origin [material]. This is scaring everyone from touching Russian [material].“

Most sources said the Asian market is the key alternative export destination for Russian exporters, but prices there are traditionally much lower than in Turkey in particular.

Fastmarkets’ price assessment for steel hot-rolled coil import, cfr Vietnam, which mainly looks at 2-3mm rerolling-grade SAE1006 HRC and equivalent products, was $885-900 per tonne cfr Vietnam on Friday March 4, increasing by $20-25 per tonne from $860-880 per tonne the previous Friday.

Fastmarkets’ assessment for steel hot-rolled coil import, cfr main port Turkey was $950-1,000 per tonne on Friday, up by $40-70 from $910-930 per tonne a week earlier.

Some sources speculated that Russian steel exporters are able to deal with Asian buyers using China-Russia joint-venture companies, while others believed that Swiss-owned trading firms associated with Russian mills were still able to operate.

Lee Allen in London, Vlada Novokreshchenova in Dnipro, Serife Durmus in Bursa and Elina Virchenko in Dubai contributed to this report.

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