Ukraine, INTENTIONALLY or NOT, created a metal crisis!

The continuation of the crisis in Ukraine also affects the metallurgical sector in Romania. „The vector product we are referring to is sheet metal, especially hot-rolled sheet metal,” explains Lucian Haritonov, CEO of H METAL, a Romanian metallurgical products distribution company.

The prolonged crisis in Ukraine affects the Romanian metallurgical sector. And this because the conflict regions of Donetsk and Luhansk are the industrial center of Ukraine. The mining and steel industries are concentrated in these regions. And this is where a large part of the steel comes from, in finished or raw form on the Romanian market.

Given the fact that most local and neighboring producers carry out their production activity based on (cheaper) resources from Russia and Ukraine (raw material needed in the production process – iron ore, slate and slate). The conflict and the restrictive measures that – adopted by both sides Russia/EU led to a gap in the supply of raw materials.

The attempt to replace the old suppliers nonchalantly orchestrates the artificial increase in the price due to the lack of stocks. But also the obligation to access some production resources not exactly readily available. This means more expensive purchases from other markets and geographical areas. Also, implicitly quantitatively limited (in fact, the increase in the price of the raw material at the factory gate accompanied by the usual, but now justified, production delays).

This aspect is also reflected in the activity of importers and distributors of metallurgical products. „The vector product we are referring to is sheet metal, especially hot rolled sheet metal. Until now, this came in a proportion of about 40-50%, coming from Ukraine and Russia. In a smaller proportion, 25-30%, small laminates also came from these countries: round steel, angle steel, wide steel, square steel.

The restrictive measures in Ukraine affect the metallurgical sector

Contextually, the crisis in Ukraine, followed by the restrictive measures imposed between Russia and the EU, outlines a cruel reality. Being the drastic decrease of the offer compared to the current demand. In short, the decrease in stocks doubled by an increase, artificial or not. In the prices of most metallurgical products”, states Lucian Haritonov.

If at the beginning of 2014, at the European level, the supply was in excess: 200 million tons of production, it clearly exceeded the demand, which was only 150-160 million tons, now the situation has reversed. At the beginning of 2014, the prices of finished metal products had a slight decrease of 10-20 euros. Being due, in particular, to large stocks compared to lower than forecasted consumption. At the beginning of August, price increases were announced and carried out for various product categories. Especially for sheet metal and small laminates, those that have a direct connection with Russia and Ukraine.

„Like the producers of metallurgical products, the importers and distributors in the field are sharpening their levers for forced price increases. Instantly assessing the impact of the „crisis”. Even in the context in which they are also obliged to initiate commercial relations with „non-traditional” suppliers from Western Europe or Eastern Asia, why not? With severe consequences: higher costs and financial efforts. BUT this time (compared to the period 2007-2008) with care, to bring the added value they need”. Haritonov emphasizes.

Prices are rising

Haritonov predicts that, under these conditions, the repetition, to some extent, of the scenario from 2007-2008 would not be excluded. When the distributors, the great multinational, but also local strategists, tried to sell at the replacement value of the stock. Now, the resources are not the same. This time, even an added value will succeed. Given the fact that financing is much more expensive, and, above all, much less/restrictive. No multinational, either producer or importer, will repeat the mistake of 2008. And the stock rotation speed will no longer be considered 1: 2.5! It will be the period of speculations, brilliant economists and successful engineers. Now the experiences from 2008 will be useful, at the level of supply, market/marketing strategy and will leave their mark on the evolution of the market.

The crisis in Ukraine affects the metallurgical sector

„So, Ukraine, INTENTIONALLY or not, created a metal crisis. At least in Eastern Europe, SE. It would seem, however, that the price of the metal in Western Europe, YET, is not influenced. But, the spatial advantage of this country cannot be contested. The experiences of 2008 marked the metal market. But the „metalists” producers/importers who were in 2008, and still are, in 2014 have certainly learned their lesson. We are not talking about a riot, a crazy madness! Now we have a reality behind us, with consequences! The price will increase, and importers/producers will be reluctant to sell anyway! It would seem, unofficially, that Ukraine is ordered to generate large stocks of tin „for its own consumption” (meaning, for the army or armed needs). As such, it cannot be assumed when it will again become a supplier for Eastern and South-Eastern Europe” warns the representative of H METAL.

The conflict between Russia and Ukraine

Among other reasons for this conflict between Russia and Ukraine, it is possible that the metallurgical industry played an important role. In 2012, Ukraine produced approx. 33 million tons of crude steel and exported approx. 24 million tons (ie approx. 12% of total European production) of steel products, it was estimated at the end of 2012 that Russia would have imported from Ukraine approx. 65 % of total steel imports.

„Russian steel producers see Ukraine as a threat” according to the statement made at that time by Sergey Donskoy. Analyst at the Societe Generale office in Moscow. At that time, there was great pressure on the main steel producers in Russia – Mechel and Evraz, who asked for help from the Moscow Government to revive the steel industry. The most important steel producers in Ukraine are Metinvest. Which controls about 50% of the market, and ArcelorMittal, which controls about 12% of the market, both having iron ore and coal supplies from their own mines.

After the end of the conflict, it is possible that Russia, through the two big producers Mechel and Evraz. Will have a harder word to say on the metallurgical market in Europe.

Until the end of the conflict, unfortunately, there will be financial losses. All these price increases and stock decreases will be reflected in the price of the product, which will be borne to the greatest extent by the final beneficiary of the product, the last in this chain of metallurgical products.