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UPDATE 1-Russia's steelmakers face weaker domestic demand in 2016
January 26, 2016 / 12:08 PM / 2 years ago

UPDATE 1-Russia's steelmakers face weaker domestic demand in 2016

(Adds background, analysts quotes)

By Jack Stubbs

MOSCOW, Jan 26 (Reuters) - Russian steelmakers face lower demand in a crisis-hit domestic market this year, making them more dependent on the rouble rate and exports, analysts said on Tuesday.

The Russian rouble fell more than 10 percent against the dollar in the last three months of 2015, prompting steel producers to chase increasingly profitable exports.

But Russia’s economic slowdown, fuelled by a collapse in global oil prices and Western sanctions over the Ukraine crisis, is seen deepening further this year, undermining domestic steel demand.

“The last quarter was challenging ... The collapsed rouble helped the steel companies to regain profitability, but this is likely to be short term,” said Kirill Chuyko, a metals analyst at BCS Investment Bank.

“Right now, the situation is a little bit better but the biggest problem is that domestically steel demand this year is going to go down.”

Severstal, one of Russia’s largest steel producers, said on Tuesday its crude steel production fell 5 percent quarter-on-quarter in the last three months of 2015.

Competitors NLMK and MMK posted and 6 and 8 percent drops in output respectively.

Only Evraz increased production, up 2 percent quarter-on-quarter, after completing maintenance works at its plants in the United States and Ukraine.

But Chuyko said Evraz was at risk from a dependence on long-steel products typically used in construction projects and its plant locations in eastern Russia.

“Domestically, long steel prices are very low and you cannot export it anywhere. Also, Evraz is located in the middle of nowhere,” he said. “80 percent of construction steel consumption located in the western regions of Russia ... Evraz is a hostage of its poor location.”

NLMK was the best positioned of its peers due to its high number of exports, Chuyko said. The company made 61 percent of its sales abroad last year.

Societe Generale analyst Sergei Donskoy said a decline crude steel production had been expected and financial results for the quarter would reveal the health of Russia’s steelmakers.

“So far, they remain competitive on the export market and they are still able to place orders at home,” he said. “What we’ll see this year is another question.” (Reporting by Jack Stubbs; Editing by Katya Golubkova and Tom Heneghan)

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