The military confrontation between Russia and Ukraine will have different effects on the world order. Apart from the geopolitical and security consequences, other areas such as industry, including steelmaking, will also be affected. Russia’s invasion of Ukraine has raised fears of a shortage of commodities such as steel, aluminum, nickel and zinc, and raised the prices of these metals which are used in many industries. Prices for commodities such as aluminum, nickel and zinc have risen since the Russian invasion of Ukraine, increasing fears of supply shortages and rising energy costs.
Sharp Rise in Steel Prices
The rise in steel prices has intensified as Russia’s invasion of Ukraine disrupted logistics and stimulated sanctions, as well as raising energy prices. Russia is the world’s fifth-largest steel producer, and Ukraine ranks 14th, accounting for one-fifth of all EU imports.
European hot-rolled sheet prices have risen nearly 40% in the past three weeks. Prices have also risen in North America and China, but to a much lesser extent, at around 7-8%. “Prices are likely to continue to rise in the short term, but we expect prices to jump again by the end of this month and by April,” analysts said. The supply sector in Europe is severely disrupted and it will take a long time to solve this problem.
Rising Energy Prices in the EU
In addition to fearing a supply cut from Russia and Ukraine, Europe will have to deal with rising energy prices due to the conflict. When Russia’s invasion of Ukraine in late February pushed up oil and gas prices and raised electricity prices, the country’s steel sector was already facing high energy costs.
Electric furnaces for steelmaking make up more than 40% of European production, which is more than other regions. According to Bank of America analyst Michael Widmer, the full impact of the conflict has not yet been shown in production data, but European steel production fell to its lowest level since 2009 in January. Data from the World Steel Association shows that in February, crude steel production in the EU fell by 2.2% from the previous month and by 4.8% in other parts of Europe.
With Europe dependent on Russia for 40% of its natural gas needs, wholesale gas prices have risen by 30% amid concerns about a shortage of supply. The price of aluminum in the London metal market jumped 5.5% to a record high of $ 3474, the highest level in history.
Commodity Markets
Russia produces about 6% of the world’s aluminum and about 10% of its nickel. The nickel price index has risen due to the escalation of the conflict in Ukraine. Prior to the crisis, commodity markets also faced problems due to supply shortages, disruptions related to the Covid-19 pandemic and rising demand.
To Ban or Not to Ban Russian Oil
It is clear that the actions of various governments regarding the crisis in Ukraine are not devoid of economic flavour. Extensive Western sanctions against Russia in all areas as condemnation and, of course, the opportunism of some governments to make the most of the situation, have further complicated the equation. Although the United States and some other countries have imposed sanctions on various industries and individuals, they still refuse to impose sanctions on Russian oil as it will lead to unprecedented jumps in oil prices and impose serious costs on importers, resulting in turmoil in energy markets, financial markets and industries. Germany is one of the countries worried about cutting off Russian gas exports.
Alternatives to Russian Oil and Gas
The risks of a Russian oil embargo are extremely high, unless a suitable alternative such as Venezuela, Iran or Saudi Arabia is found. This is also the case in the gas sector where Iran, Egypt, Algeria and Qatar have the potential to replace Russian gas. New political decisions in the economic sector will have to be made due to the failure of the Nord Stream 2 project. But the interdependence of Russia and Europe in the field of energy will have serious consequences for both sides. Europe and especially Germany are still reluctant to impose sanctions on Russian gas and oil exports and to some extent oppose them. Germany seeks to find a logical way to reduce its dependence on Russia in due course. If energy transfers from Russia to Europe fail, even finding an extra 50 billion cubic metres of gas per year will not be enough. Europe is in serious need of Russian gas for the cold winters and its infrastructure industry. Russia has now shifted its gas sales to a price multiplier and an energy war with Europe has begun.
Russia-Ukraine Steel Facts
The world’s steel market, as its other sectors, is also affected by the current situation. Russia is one of the largest producers of steel in the world and also one of the countries with high iron ore reserves. Ukraine, meanwhile, has lost one of its major economic and industrial potentials, its control over the Black Sea’s energy resources and the peninsula’s resources, following the secession of Crimea and its annexation to Russia. The country has experienced a significant decline in GDP since 2015. Its steel industry (the world’s 13th largest steelmaker and one of the richest countries in iron ore) has also stalled since the war. Steel giants such as ArcelorMittal have ceased operations in Ukraine on the one hand, and the giants of the Russian steel industry are facing sanctions on the other. The continuation of these conditions will cause significant fluctuations in the world steel markets. Rising prices for slabs and other steel sections are likely to continue in the coming weeks due to concerns about declining supply. The world iron ore market will also face rising costs of sales and transportation due to trade sanctions in the field of maritime transport.
A Golden Opportunity for China
There are currently more than 150 million tonnes of iron ore in Chinese ports. China can use this huge volume as a strategic reserve in the short and even medium term to manage the supply of iron ore to the steel industry, and to some extent compensate for the shortage of iron ore originating in Russia and Ukraine. Large-scale long-term industrial sanctions will seriously hamper Russian steel projects. Under such circumstances, the Russians will turn to selling their assets abroad and will focus on the East for economic and industrial development, especially in steel.
Bypassing Sanctions
Increasing steel trade with China and even South and Southeast Asia is not improbable due to its potentials. Although China, in conjunction with the international community, has imposed a number of trivial sanctions on Russia to appease the world and protect its interests, this ideological ally of Russia is unlikely to join in the massive sanctions.
There will still be ample opportunity for the Russian steel industry. Despite the cessation of Russian steel exports to Europe, European countries will not enter into a steel and industrial war with China in such unstable conditions when Russia can rely on the Chinese market.
Conclusion
With the collapse of the Moscow stock market, complicated conditions will prevail. The final export prices for the country’s steel in the world market will be lower than the global price, and this will be a good opportunity for non-European steel-consuming countries to bypass sanctions to buy Russian steel at cheaper prices. However, the war will reduce world steel production, and increase the cost of raw materials and supply prices for different sectors.
