The conflict between Russia and Ukraine, as well as sanctions on Russia, have raised input prices and logistics costs, impacting domestic steel exporters.
Steel was in short supply due to geopolitical tensions. Because, Russia and Ukraine were the world’s second and ninth largest steel exporters, respectively, and the first and third largest EU steel exporters, with 7.3 and 4.5 million tonnes exported in 2020. Russia is also a major supplier of coking coal. Steel shortages in the EU have been increased as a result of geopolitical tensions and sanctions, which have disrupted steel and iron ore transportation routes. Sanctions against Russian banks that finance trading might jeopardize steel and commodity export deals. Because of the shortage of steel and the increase in input costs, the interruptions put increased pressure on steel prices in the EU and eventually globally. The price of Australian coking coal increased by 50%, while the price of EU HRC increased by 10%.
If the sanctions against Russia remain in place, the EU steel supply and demand imbalance could endure, despite rising global infrastructure spending and China’s steel export restrictions to maintain domestic demand. EU steel makers could boost volume with capacity utilization of 63 percent in 2020 and predicted to rise to 70-80 percent in 2021. However, due to high raw material, energy, and labor costs in the EU, the plan is ineffective in comparison to major steel-producing regions. As a result, Kis Vietnam anticipates that lower-cost producers from India, Vietnam, and other countries will benefit from the export opportunities to the EU market. HPG, a high-efficiency steel plant in Vietnam, and NKG, HSG, flat steel exporters, are among the winners.
China might purchase Russian steel and other commodities because it has not joined the sanctions, in Kis Vietnam’s view. Russian steel would assist China in lowering input prices and achieving its carbon neutrality goal. As a result, global steel export flows will be altered, with steel goods from India, Korea, and Vietnam replacing those from Russia in the EU and other regions, and vice versa in the Chinese market. Furthermore, regional steel price differences exist.
Meanwhile, the tension and sanctions would improve the average selling price (ASP) for steel mills and exporters, but the volatility in raw material prices (coking coals, iron ore, scrap) would hurt gross margins. The extent of the impact of tension will vary according on each steel mill’s ASP or input price increase, the period that mills stock their input materials, and how dependent the mills are on foreign supplies.
Kis Vietnam expects to witness the full impact of the input price surge on mill performance in the following quarter if the input price remains as high as it was in March. Furthermore, rising logistic costs as the price of oil has risen may be another issue affecting domestic steel exporters. It is expected, however, that enterprises who take advantage of the export opportunity for all sorts of products will be able to reduce the impact of input price fluctuation. Flat steel exporters should expect a stronger gross margin starting in 2Q22 or 3Q22, depending on export contracts, because the HRC price growth rates differ dramatically between countries (for example, EU 32 percent; Vietnam 8.6 percent from 3rd Mar).
According to Kis Vietnam, if sanctions are maintained, the price of coking coal will fall from late 2Q22F to early 3Q22F, owing to (1) better weather conditions in Indonesia, which could support production volume in 2Q22, and (2) China’s plans to increase domestic production capacity to reduce reliance on imported coal. While the reduction in Indonesian production and the halt of China’s mining operations were two of the main causes driving up coal prices in recent quarters, the reversal of those two factors is expected to assist coal prices stabilize amid the uncertainty surrounding the lifting of sanctions.
“For 2Q22F, we assumed coking coal and iron ore input prices of USD530 and USD140 per tonne, respectively,” Kis Vietnam stated.
If you want to import GOOD QUALITY Steel Coils from Vietnam, please contact us at:
– Email: email@example.com
– Mobile/Whatsapp/Wechat/Line/Viber: +84 973 765 730
– Website: https://steelvn.vn/