The steel industry in Russia is helping the country cope with Western sanctions

As a breath of fresh air for the Russian economy, steel helps the country affected by the onslaught of Western sanctions.

Life is good for the workers at the steel company, Severstal.

Along with spa sessions, Severstal covers the costs of vacations to Sochi from the Black Sea. A dental office offers two free services annually. Workers also received an 8 percent salary increase this year, along with other bonuses.

„A crisis is supposed to have appeared,” said Andrei Meledin, who works on a production line. „But we don’t feel it here.”

While the rest of Russia is facing recession, steel companies like Severstal are booming. In the first quarter, Severstal reached a profit of 343 million dollars, after reporting losses in the same period last year.

The drop in oil prices, the increase in geopolitical tensions and the Western sanctions have largely wreaked havoc on the Russian economy. The World Bank estimates that the economy will contract by 2.7% this year.

But the same conditions proved extremely favorable for some commodity companies in Russia, especially those in the steel and chemical industries. These companies, which were not affected by the sanctions, benefit from a weak ruble exchange rate. Significant costs for raw materials and labor are expressed in rubles, but their goods are sold on global markets, where prices are generally set in dollars.

„Small and medium-sized businesses are affected by sanctions” more than large commodity businesses, said Daniel Treisman, a political science professor at the University of California, Los Angeles. „The ruble at a low level obviously helps exporters and affects consumers.”

Steel helps the Russian economy, but the dynamics are changing

At Severstal, all production lines operate at approximately 97 percent of capacity. The dynamics of the industry, however, have changed.

In the first quarter of this year, global prices for a main type of steel produced by Severstal, hot-rolled steel, fell to $320/ton from about $400/ton, by about 20%. But costs for Severstal and other Russian companies fell even more, along with the ruble.

To focus on Russian operations following improved conditions for the country’s steel players, Severstal sold a plant last summer, acquired a decade earlier, in Michigan. The company intends to invest ten million dollars in the renovation of furnaces in Russia.

Article source: http://www.seattletimes.com/nation-world/boon-in-steel-helps-russians-buffer-western-sanctions/

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