Russia-Ukraine war: How could trade dynamics change?

• Oil climbs to 7-year high, stocks slide
  
  
• Russia third largest steel exporter globally
  
  
• Russia and Ukraine contribute about 10% of global steel exports
  
  
• EU, Turkey largest importers of Russian steel/scrap respectively
  
  
• Steel, scrap, metallics, natural gas and coal trade flow to be impacted
  
  

Russia invaded Ukraine on 24 Feb'22, putting global leaders in a tizzy, pushing up benchmark Brent prices to a seven-year high of over $105/barrel, and causing a stock market landslide across a world already labouring under surging energy prices and rapidly mutating Covid variants.

It is evident that the global trade dynamics will get re-aligned, and impact the flow of commodities especially since Russia is the third-largest steel exporter in the world after China and Japan while Russia and Ukraine combined control almost 45 million tonnes (mnt) or 10% of the nearly 420 mnt of the total global seaborne steel trade.

Russia exported 30.30 mnt of steel in 2021, up 13% y-o-y against 26.85 mnt in 2020 while Ukraine's steel exports last year touched 15.26 mnt, down 6% y-o-y, data maintained with SteelMint reveals.

The European Union is the largest importer of Russia's steel at 8.83 mnt in 2021, up a sharp 58% y-o-y against 5.60 mnt in the previous calendar.

• Iron ore, scrap, metallics and semis - In scrap and metallics too the EU has the largest exposure to Russia. Of Russia's total scrap and metallics exports in 2021, the share of EU was 2.19 mnt and Turkey's, a leading 2.66 mnt. Total metallics exports - mainly of scrap and hot briquetted iron (HBI) - totalled 0.45 mnt in 2021 (0.37 mnt), up 21% y-o-y.
  
  

Iron ore and pellets exports were stable at about 25 mnt over 2021 and 2020. In billets, Russia has a significant 15 mnt overseas exposure globally.

Ukraine, on its part, has a fair share of metallics exports, with nearly 48 mnt (iron ore at 44.36 mnt and pig iron, at 3.18 mnt) in 2021.

• Coal - Russia's coal exports grew almost 9% y-o-y to 214 mnt last calendar (196 mnt).
  
  

How will the trade flow be impacted?

Countries which have the highest exposure to Russia's exports will be the hardest hit.

• Steel: Adopting a hardened stand, the European Union (EU) said Russia has violated international law in recognizing non-government controlled areas of Ukraine as independent entities. The EU said it will slap a series of sanctions on Russia that include restriction of trade with the two Russian-controlled territories in eastern Ukraine. Further sanctions are expected. With the largest exposure to Russia's exports, the EU is bound to face supply disruptions and shipment delays in steel and related raw materials. Such an eventuality will drive it to scout for other sourcing destinations like Turkey, which is geographically close, especially for steel.
  
  

Turkey and Mexico too will feel the heat being the second and third largest Russian steel importers at 4 mnt and 3.4 mnt respectively.

• Scrap: Turkey, situated at the cusp of Europe and Asia, is the largest scrap importer in the world and for Russia, its largest scrap buyer. Russia's scrap and metallics are procured by the USA, China, Belarus and South Korea among others. If supply disruptions are seen emerging from Russia, prices of scrap and metallics will spiral northward which would eventually make steel pricier.
  
  
• Natural gas: Russia may cap sales of oil and natural gas to the EU, already writhing from record high prices that have led to temporary closure of and/or production cuts at steel mills. Gas prices in early trading on the TTF virtual platform zoomed 35% to Euro 120/MWh. A total of 41.6 bcm of Russian gas transited Ukraine to Europe in 2021, accounting for around 10% of the European demand.
  
  
• Coal: Russia exports coking coal to South Korea, Japan, and Ukraine with volumes of around 14 mnt seen in 2021 - about 45% of the country's total coal exports. With the sanctions on Russia, these importing countries would now have to rely heavily on Australian coking coal since imports from the USA are costlier because of higher freight.
  
  

Meanwhile, China is poised to return to the market post-holidays and Games and is eyeing Russian coal big-time. Russia is also heard to be increasing its supplies to China. But the latter's steel mills are well-stocked in met coke and demand will emerge only on inventory depletion.

Outlook

It is difficult to say how long the disruptions in steel-related commodities will prevail in the face of this ongoing geo-political crisis with severe trade ramifications.

However, Indian mills can benefit if EU countries, hit by gas supply and prices and Russian imports, need more sourcing destinations. Turkey too can increase India sourcing to feed domestic demand.

Overall, a further energy/raw material cost push will make steel more expensive.