Page 9 - bneMag April 2022 Russia living with sanctions

bne April 2022 Companies & Markets I 9
Russian steel imports banned in EU's fourth sanctions package
bne IntelIiNews
The European Union has approved and enacted a fourth sanction package against Russia for the military invasion of Ukraine, which includes an import ban on steel.
Several more oligarch names were also added to the EU’s sanctions list, including Chelsea owner and shareholder of metals major Evraz Roman Abramovich, Suleiman Kerimov of the country's largest gold miner Polyus Gold, and internet major Yandex's deputy CEO Tigran Khudaverdyan.
The ban on imports to the EU of some steel products will have the biggest effect. The highlights of the EU package consist of the following:
• A complete ban on transactions with numerous SOEs
and companies from the shipping and arms industries, including Rosneft, Transneft, Gazprom Neft, Sovkomflot, United Shipbuilding Corporation, Oboronprom, United Aircraft Corporation, Uralvagonzavod, Almaz-Antey, Kamaz, Rostec and Sevmash.
• An import ban on iron and steel products, which could cost Russia an estimated €3.3bn per year. The quotas are to be distributed among non-EU countries.
• A ban on investments in Russia’s energy and refining industries. Exemptions were made for NPPs and "selected energy products" exported to the EU.
• A ban on exports of luxury goods to Russia, e.g. cars and jewelry. In particular, the EU banned exports of cars to Russia worth more than €50,000.
• EU rating agencies are not allowed to work with Russia or Russian companies, or to provide rating services to Russian clients.
• Russia can no longer benefit from favourable terms of trade, meaning that tariffs could be introduced.
bne IntelliNews published a guide to the sanctions on Russia last month.
Commodities closely watched as steel first banned by EU
A wide range of commodity prices have already jumped and are set to surge further amid supply disruptions as a result of Russian counter-sanctions on the West. As analysed in detail by bne IntelliNews, Russian metals are deeply embedded in global markets and would be hard to sanction. Yet a ban on Russian steel imports has been included in the sanctions.
"[The EU ban is] negative for steelmakers’ financials, but that billets/slabs will still trade should partly offset the impact at least for NLMK – semis exports to EU represents c40-42% of
all NLMK’s ex-CIS steel exports (12-14% for Severstal, less than 2% for MMK),” BCS GM said in a note.
"Kallanish reported that the EU will now prohibit imports
of those Russian steel products currently under safeguard measures – mostly finished long, flat and tubular materials. The trade of billet and slab will continue, unless with companies impacted by direct EU sanctions. The ban is estimated to affect around €3.3bn ($3.63bn) of Russia’s steel exports. Import quotas will be re-distributed among other countries."
Aton Equity argued on March 15 that the Russian metal majors most dependent on the European market are Novolipetsk Mining Kombinat (NLMK) and Severstal, while Severstal already announced halting European exports after the sanctions against its owner, Alexei Mordashov.
The share of European sales for NLMK is at about 18%, while other producers are less dependent on the market (Evraz and Magnitogorsk Iron and Steel Works (MMK) at about 7% of total exports each). At the same time, the steel producers are expected to come under pressure to cut prices at home.
Analysts warned that the ban on imports of Russian steel was likely to push up already sky-high prices.
"Following the recent increase in steel prices at YE21, the European steel market could be facing another price hike. Last year, higher costs (for iron ore in particular) drove steel prices (Global steel output slows in June, propping up current steel prices, 26 July 2021). This time, we see the shortage of Russian and Ukrainian slab and flat steel on European markets as the key driver, supported by the iron ore cost-push (commodities with the most significant share
The EU has slapped a fourth package of sanctions on Russia. It exempted many metal products, but did include steel.
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