US, UK sanctions on Russia’s Metalloinvest to have limited impact on HBI market

The latest Western sanctions arising from Russia's invasion of Ukraine will have little impact on the global hot-briquetted iron (HBI) market unless key buyers in the European Union adopt the measures, Fastmarkets understands

The sanctions – imposed on April 12 on Russia’s USM Holding, which includes mining and metallurgy company Metalloinvest – will have limited impact on the global HBI market because neither the US nor the UK have been a buyer of the product, sources told Fastmarkets in mid-April.

But its impact could be massive if the EU follows suit, because some buyers there import a lot of HBI from Metalloinvest, sources said.

Whether the EU will do this, however, is far from clear, according to market participants.

“In coordination with the United Kingdom, we are targeting [the] sanctions-evasion network supporting one of Russia’s wealthiest billionaires, Alisher Usmanov, who was sanctioned by the United States last year,” the US Department of State said on April 12. “In addition… we are also targeting USM Holding, the primary entity through which Usmanov owns and controls the majority of his companies.”

In addition to USM Holding, the US has sanctioned Holdingovaya Kompaniya Metalloinvest, Lebedinskiy Gorno Obogatitelniy Kombinat and Mikhailovskiy Gorno Obogatitelniy Kombinat (Metalloinvest’s mining and beneficiation plants), along with Oskol Electrometallurgical Plant (Metalloinvest’s only steelmaking asset, which produces steel billet and long steel products) and UAE’s Hamriyah Steel (Metalloinvest’s rebar-rolling joint venture in the Middle East).

In 2021, Metalloinvest was the largest supplier of HBI in the world, supplying 4.2 million tonnes of HBI and direct-reduced iron (DRI), according to the latest operations report available on the company’s website.

Metalloinvest is the only HBI exporter in Russia and shipped out 3.17 million tonnes of HBI in 2021, before edging down to 3 million tonnes in 2022, according to the International Steel Statistics Bureau (ISSB).

Russia does not currently disclose its export data, making it difficult to provide an exact calculation of pig iron export volumes for 2022, so Fastmarkets analyzed import statistics from the key buying nations.

Neither the US nor the UK imported HBI from Russia in 2022.

“So far the impact of sanctions on the market can be only indirect, because the US and the UK do not buy from Russia. [But] the EU buys, [so if it] follows the move, Metalloinvest will need to find a home for huge tonnages of HBI,” one international metallics trader told to Fastmarkets.

In 2021, the EU imported 1.64 million tonnes of HBI from Russia, according to ISSB. That was 51.74% of total exports from Russia during the period, according to Fastmarkets’ calculations.

And in 2022, imports to the EU were almost unchanged at 1.65 million tonnes.

Italy is the main EU importer of Russian HBI, importing 913,095 tonnes in 2021 and 815,862 tonnes in 2022.

“The fact that the US and the UK imposed sanctions on Metalloinvest increases the chance that the EU will follow with such a move,” a second metallics trader said. “But even without imposing the sanctions, they will raise concerns among Europeans that companies [dealing with Metalloinvest] that export products produced with Russia-origin raw materials may have difficulties.”

A third Europe-based metallics trader told Fastmarkets: “[The sanctions will have a] limited impact unless the EU follows, although banks might [decide to] refuse the execution of payments. In fact, I think we will see the scrap market benefiting.”

He said that if the EU does follow suit, it would have the biggest impact on the Italian market and Metalloinvest will be forced to sell more HBI to China, which is normally a smaller market than the EU.

Even so, according to ISSB, China imported 717,705 tonnes of HBI from Russia in 2021, and 697,080 tonnes in 2022.

Fastmarkets’ price assessment for hot-briquetted iron, cfr Italian ports was $420 per tonne on April 13, unchanged week on week.

The latest offers of HBI from Russia in China were heard at $385-390 per tonne CFR, with no sales reported, sources told Fastmarkets.

Potential pig iron sanctions

Meanwhile, Fastmarkets has also learned that imports of pig iron from Russia could be subject to EU sanctions in May.

Metalloinvest did ship pig iron to the EU, mainly to Italy, until it completed the sale of Ural Steel – its pig iron and steelmaking asset – to Russia’s Zagorsky Pipe Plant (ZTZ) on March 1, 2022. Pig iron produced at Ural Steel continues to be shipped to Italy on a regular basis, sources said.

On April 1, the US government announced that it will apply a 70% duty on any pig iron imports from Russia – despite the fact there have been no pig iron imports from Russia since the middle of 2022.

“After the US imposed duties on Russian pig iron, [rumors] about pig iron [being] included in the next pack of EU sanctions intensified. But… there is fairly strong lobbying against this from the EU mills that are still buying [pig iron] from Russia,” a trading source from Italy told Fastmarkets.

And a German trader said: “I don’t think a complete European ban [on pig iron imports from Russia] is a likely scenario – maybe quotas for slab, [but] EU mills are opposed to that idea as well as far as I know.”

Julia Bolotova in Brussels contributed to this report.

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