Metals & Mining


Analytical commentary

Between January and April 2016, steel products in Russia appreciated 34-47%, and May just saw the trend persist, which ran consumers into a serious concern on the back of low demand in construction and mechanical engineering. In an effort to curb the price growth, the Federal Antimonopoly Service (FAS) has stepped in holding a meeting on May 24, 2016, and declaring an intention to come up with a decision till the end of June on fining those metal producers, who would be exposed as violators of the Antimonopoly legislation.

ACRA does not expect any rough sanctions against Russian steel makers by FAS, as the steel price hike in Russia merely reflects a similar trend in the global market, which saw hot-rolled coil climb 56% to USD408 / ton from January to April 2016 (Black Sea FOB price). On the other hand, ruble strengthening over the same period inhibited domestic price growth by 22%. Overall, the prices gained 34%, which suggests no deliberate market manipulation by steel producers.

Figure 1. Impact of the global prices and the ruble exchange rate on hot-rolled coil prices in Russia between January and April 2016

Source: ACRA estimates, Bank of Russia, Gazprombank CEF

ACRA believes that the steel prices surge on the Russian market seen in May has exhausted itself and expects the local prices to decline 15-20% in 2H16 following their global peers and backed by the expected ruble devaluation, which will slow down the price decline on the Russian market:

  • In 2H16, global steel prices are expected to fall, as steel capacities load will stay at an average of 70-72% due to low demand. As a result, hot-rolled coil on the global market should retreat to USD350-360 / ton, losing 14-17% versus April.
  • ACRA believes that oil prices may weaken in 2H16, among other things due to a possible key interest rate hike by US FED. Eventually, the ruble exchange rate over the period is projected to decrease to RUB67-69 / USD.

Figure 2. Hot-rolled coil export and local price forecast, RUB / ton

Source: ACRA estimates, Bank of Russia,, Gazprombank CEF

On average prices 2H16 will be 19% higher than they were in 1Q16, and the largest domestic steel makers will be able to raise EBITDA margin from the 1Q16 average of 23% (for large companies) to 25-30%.

Amid projections of further ruble devaluation, one might expect Russian steelmakers to show an improvement in leverage.

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Maria Mukhina
Operating Director
+7 (495) 139 04 80, ext. 107
Natalia Porokhova
Senior Director, Head of Sovereign Ratings and Forecasting Group
+7 (495) 139 04 90
Maxim Khudalov
Head of the Sustainable Development Risk Assessment Group
+7 (495) 139 04 96
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