Metallurgical industry in Russia: largest steel producers

Overview of the global steel market

The COVID-19 pandemic has had a significant impact on the global steel industry in 2022.
High uncertainty, the introduction of restrictive measures to curb the spread of infection, partial suspension of production chains and turbulence in commodity markets have led to significant imbalances in the balance of supply and demand, which also changed the structure of global trade flows in all key regions. In 2022, the global economy was subject to sharp fluctuations in market conditions. The metallurgical products market was no exception: the most sensitive blow for manufacturers was the sharp decline in demand for their products caused by the introduction of measures to counteract coronavirus infection and, as a result, the suspension of production, construction projects, etc. in China, and then in others countries. As a result, the price of steel began to fall in the first quarter of 2020. As China's economy recovered, from May 2022 the trend began to change to positive, and in the third quarter there was a fairly sharp acceleration in growth, which continued at the beginning of 2022 (Fig. 1).

Rice. 1. Dynamics of steel production volumes in the TOP 7 countries, thousand tons (left axis) and average annual steel price in 2015–2021, dollars/t (right axis)

Source: LME, WorldSteel
During the restrictive measures related to the spread of coronavirus infection, due to a drop in demand for metallurgical products in many producing countries, blast furnaces and converters were closed, which was the reason for such dynamics.

The first country where business activity began to recover was China. A large-scale government program to stimulate the economy and finance large infrastructure projects contributed to a sharp increase in domestic demand for steel products and subsequently increased prices for steel products around the world (Fig. 2).

Rice. 2. Structure of steel production by region for 2022, %

Source: Bloomberg
According to the Worldsteel Association, global steel production in 2020 decreased by 1% y/y, to 1.83 billion tons, which was almost completely offset by the record volume of steel production in China (+8% y/y, up to 1.05 billion tons). The utilization of steelmaking capacity in the world averaged 82% (Fig. 3).

Rice. 3. Dynamics of global steel production, billion tons

Source: Bloomberg, Worldsteel
Amid the crisis associated with the pandemic, global steel demand fell by 2.4% in 2022. Demand in the eurozone fell by 15.2%, while steel consumption in India fell by 20.2%. In response to the decline in demand, the operation of blast furnaces with a total capacity of about 70 million tons was suspended.

Steel production in the United States in 2022 decreased by 17% year-on-year, to 73 million tons. Average capacity utilization was 67% and was below the pre-crisis level at the end of the reporting period. Steel consumption in 2020 decreased by 19% YoY, to 86 million tons, amid limited supply from producers due to the COVID-19 pandemic. At the end of the reporting period, there was a revival in demand in the automotive and construction sectors, but the lead times of orders by steel producers were at historically high levels: preference was given to long-term contracts, while the supply of steel on the spot market was practically absent. Imports of steel products at the end of the year decreased by 21% y/y, to 20 million tons, exports - by 4% y/y, to 6 million tons.

In the EU countries, steel production decreased by 12% year-on-year, to 139 million tons. By the end of 2022, monthly production volumes almost reached pre-crisis levels amid high production profitability. Capacity utilization dropped to almost 50% during the pandemic, but recovered to 70% by the end of the reporting period. Apparent consumption of steel products in the EU in 2022 fell by 12% YoY, to 142 million tons, amid weak demand caused by the COVID-19 pandemic and forced shutdowns. At the end of the reporting period, there was a revival in demand in the automotive and engineering sectors. Imports of flat rolled products decreased by 17% y/y, to 21 million tons, exports - by 13% y/y, to 18 million tons.

During the pandemic, China managed to successfully contain the spread of the virus, while other countries faced high infection rates and were forced to impose strict quarantine measures until mid-May 2022. While apparent demand in the world decreased by 2% y/y, to 1.75 billion tons, in China it increased by 8% y/y, to 1.05 billion tons. At the same time, exports from China decreased by 17% y/y, up to 54 million tons (Fig. 4).

Rice. 4. Export of metal products from China, million tons

Source: Bloomberg, Worldsteel
In 2022, China became a net importer of steel for the first time since 2009. This contributed to rising steel prices in Southeast Asia (Fig. 5).

Rice. 5. Volumes of steel exports and imports in China, million tons

Source: Worldsteel
Steel demand fell sharply in the second quarter, but pent-up demand accelerated growth in the third and fourth quarters of 2022 as strict lockdown restrictions eased. In the second half of 2022, the metal products market entered a recovery phase, dictated by pent-up demand and high prices for raw materials. At the same time, steel mills began to restart idled blast furnaces.

Already in January-May 2022, global steel production amounted to 837.5 million tons (+14.5% compared to the level of the comparable period in 2022). In North America, steel production increased by 11.3% to 48.4 million tons, in the EU (27) - by 15.3% to 64.4 million tons, in Africa - by 24.4% to 6.5 million tons, in Asia - by 14.9% to 616.5 million tons, in South America - by 24.1% to 18.7 million tons, in European countries outside the EU - by 17.3 % to 20.9 million tons, in the Middle East - by 8.1% to 17.8 million tons.

In general, developed markets, where the service sector occupies a significant share of GDP, were hit the hardest by the crisis. In 2022, due to two waves of COVID-19, GDP growth slowed in the US (from 2.2% in 2022 to -3.4%) and the EU (from 1.3% in 2022 to -7.2%) . Developing countries have also felt the effects of the crisis. Due to strict quarantine measures, India's GDP decreased by 8% in 2020. China's GDP growth fell to 2.3% in 2022 (from 6% in 2019) thanks to fiscal stimulus measures and effective virus containment.

Kremenchug steel mill

This Ukrainian enterprise is known almost all over the world. For the most part, parts for freight cars are cast here, in particular wheels. In addition, the plant produces cast parts for the automotive industry and its own repair needs. This plant employs approximately 2,500 specialists as of 2014. But due to the economic crisis in Ukraine and deteriorating relations with Russia, the plant almost completely stopped. This is due to the fact that approximately 95% of manufactured products were purchased by the Russian Federation. As a result, they are increasingly talking about mothballing the plant, and after that it may simply be dismantled.

The first visible deterioration began back in 2009, when the company lost most of its assets. Already in 2010, the plant went bankrupt, but did not stop operating. However, by 2013, production volumes decreased by 48%, which actually meant a shutdown of the enterprise, which happened a little later. Now it is difficult to say whether the Kremenchug steel plant will operate or not.

Key indicators of the metallurgical industry in Russia

If in 2022 Russia ranked 6th in the world in steel production, then at the end of 2022 it ranked 4th after China, India and Japan.
In 2020, global steel production reached 1864.0 million tons (mt), down 0.9% from 2022, while Russia produced 73.4 million tons in 2022, down 2. 5% more than in 2019 (Fig. 6). Rice. 6. Dynamics of steel production in Russia, million tons

Source: Worldsteel
In Russia, the index of metallurgical production in January-May 2021 amounted to 99.0% of the level of the same period in 2022, the index of production of finished metal products - 111.6%. The main increase in steel production in Russia has been observed since May 2022. At the same time, in the first half of 2022, 38.2 million tons of steel were produced in Russia, which is 8.5% higher than the figure for the same period in 2020 (Fig. 7).

Rice. 7. Dynamics of steel production in Russia by month for 2019-2021, million tons

Source: Ministry of Industry and Trade of the Russian Federation

Leading steel producers in Russia

Despite the nationwide increase in steel production in 2020, this period was a difficult time for Russian leading companies in the metallurgical industry.
In the first half of 2022 alone, steel production and sales showed high growth. The main leader in steel production, as in previous years, is the NLMK group of companies

, which managed to increase production by almost 1 million tons in the first half of 2022 compared to the previous period. Steel production was increased due to an increase in production turnover at NLMK's Lipetsk site.

The commissioning of a 2500 g/p mill allowed MMK

increase steel production by 1.3 million tons more than in the same period in 2022.

Increase in steel production

connected, first of all, with the launch of the blast furnace and the new EAF-1.

Production problems at the EVRAZ ZSMK sinter plant

led to a reduction in steel production (Fig. 8).

Rice. 8. Steel production Top 7 largest metallurgical companies in Russia, million tons

Source: Ferrous metallurgy market overview, 2018-2021
The first half of 2022 was also marked by a change in the leader among leading metallurgical companies in terms of revenue received: for a long time, the leading position was occupied by EVRAZ, and based on the results of the first 6 months, NLMK. At NLMK, revenue from the sale of metal products in the first half of 2022 increased by 73% compared to the corresponding period in 2022, mainly due to an increase in prices for products sold (Fig. 9).

Rice. 9. Revenue of the Top 7 largest metallurgical companies in Russia, billion dollars.

Source: Ferrous metallurgy market overview, 2018-2021
Overall, both revenue and net profit of Russian metallurgical companies have soared. Thus, the total income of the top seven in January-June 2022 increased 1.5 times - from 22.4 to 33.8 billion dollars. The increase in profits of metallurgical companies is primarily due to the global rise in metal prices.

Table 1. — Financial indicators of leading metallurgical companies in Russia

Source: Ferrous metallurgy market overview, 2018-2021

State regulation of the metallurgical industry

When the recovery of market activity in large economies began (which was poorly forecasted), many production capacities were not launched promptly and fully.
Countries, including Russia, that did not stop their production, took advantage of the favorable environment to sell their products on the world market. In particular, the Government of the Russian Federation approved a set of measures to stimulate the economy to mitigate the consequences of the economic crisis. Fiscal stimulus measures were aimed at supporting the population and business. The Central Bank of Russia reduced the key rate to 4.25%. This is a record low in the country's history. The inflation rate at the end of the year was 4.9%. Domestic demand for metal was supported by the government program of preferential mortgages and subsidies to the automotive industry. Since the second half of 2022, there has been a sharp increase in the cost of the metal both on the global and domestic markets. The average increase in the cost of metal for the period from June 2022 to May 2022 was 56-87%, which attracted the attention of the Russian Government. In the summer of this year, the Russian steel market passed the peak of the price rise and began to decline sharply. By the beginning of September 2022, the cost of steel products had decreased by 15–20% compared to the maximum levels of summer 2022.

Rice. 10. Dynamics of metal prices in the Russian Federation, thousand rubles/ton

Source: Chamber of Commerce and Industry of the Russian Federation
From August 1 to December 31, 2022, the Government of the Russian Federation introduced state duties on the export of ferrous and non-ferrous metals, as well as metallurgical raw materials: a general duty of 15% and a special duty, the amount of which will depend on the type of metal or the degree of processing of the product. The Russian authorities introduced this measure in order, firstly, to withdraw the “extra profits” received by metallurgists due to high world prices (more than $100 billion), and secondly, as a consequence, due to rising prices on the domestic market. It is planned to seize 110-115 billion rubles through duties. from exporters of ferrous metals and another 50 billion rubles. from non-white exporters. The announcement of the introduction of export duties contributed to a decrease in Russian prices for rolled products, which were inflated at the beginning of the summer. In the context of a significant decrease in export revenues and the narrowness of the markets of the EAEU countries, which were not subject to duties, Russian metallurgical companies naturally began to pay more attention to domestic supplies, which was not the only reason for the price decline.

The logic of introducing export duties is clear; an increased duty will make exports economically unprofitable - the domestic market will be saturated and the price will decrease. But this will only work if the export duty is applied taking into account the current market situation. Otherwise, the additional tax burden will lead to higher prices.

There are other global ways to reduce prices on the domestic market - conducting antitrust investigations. However, in this case, it is necessary to increase antimonopoly fines in Russia. In Russia, they are calculated based on income for the year preceding the violation, that is, when there were no excess incomes. The fine is limited to 4% of annual revenue and is levied for just one year, although the identified violation could last for decades. Therefore, maximum fines of billions of rubles in Russia are imposed in exceptional cases, while in the USA and the European Union fines of billions of dollars or euros are the norm.

The apparent demand for steel products in physical terms began to decline in the spring of 2022. By that time, quotations for sheet metal were 60-80% higher than the level at the beginning of November 2022, and this rise in price went further along the production chain, causing an increase in prices for metal structures, corrugated sheets, metal tiles, etc.

In a growing market, apparent demand is always higher than real demand due to the speculative component. And until about June, Russia actually experienced a shortage of certain types of steel products. Due to this, metallurgical plants managed to increase prices for hot-rolled steel to 105 thousand rubles. per ton of CPT in July 2022, and for galvanized steel - up to more than 150 thousand rubles. per ton. Obviously, this jump played a significant role in the fact that the government, which had long been hesitant to resort to radical measures, decided to introduce export duties.

As soon as prices swung in the direction of decline, all processes turned in the opposite direction. Apparent demand has fallen, because now consumers are interested in postponing purchases for as long as possible. A number of companies in some market segments have begun to play short, trying to force suppliers to provide new discounts, and at the same time increase their share in a shrinking market. In July, this trend developed most actively in the welded pipe sector, and in August, prices for coated rolled products and products made from it fell the fastest.

In July, metallurgical plants were able to find a way out by increasing export volumes to non-CIS countries, while the duties had not yet come into force. In some cases, in particular in the Asian direction, these supplies resembled a cheap sale, but excess sheet metal was removed from the Russian market. However, this did not prevent the decline.

In August, the situation on the global market changed for the worse for Russian companies. First of all, demand has fallen. In Vietnam, which is the largest buyer of hot-rolled steel in Southeast Asia, there was an outbreak of coronavirus, as a result of which the government announced a strict lockdown in Ho Chi Minh City, the country's second largest city, and quarantine restrictions in several other regions. In the second half of August, Vietnamese producers of hot-rolled coils themselves were looking for customers abroad.

Metallurgical companies turned to the Government of the Russian Federation with requests to adjust tariffs and reduce or cancel the minimum rate for cheaper billets. But as of September, the authorities had not cooperated. Although, according to Deputy Minister of Industry and Trade of the Russian Federation V. Evtukhov, there are no plans to extend the duty until 2022. However, there are still several months before the tariffs are lifted. Meanwhile, the deterioration of the external environment contributed to the growth of excess supply of rolled products on the Russian market, which caused a sharp drop in quotations in August.

Here we must also take into account the fact that domestic prices in the first half of the summer were greatly inflated. If we take export quotes as a starting point, then on the Russian market similar products sometimes cost 10-15 thousand rubles more. more per ton. Of course, at some point the decline must stop. The traditional benchmark on the Russian market is export parity. In this case, taking into account the duty. For hot-rolled steel, its value at the beginning of September corresponded to 65-67 thousand rubles. per ton including VAT, for fittings (if compared with the export of this particular product) – 55-60 thousand rubles. per ton.

Construction materials

Metallurgical and chemical complexes supply structural materials necessary for industry and construction.

Construction materials are a variety of materials that are used to make finished products or construction.

Based on the time of their origin, construction materials are divided into traditional ones, which humanity has been using for a long time, and new ones, which began to be used in the 20th century.

By origin they are classified as metallic, non-metallic and composite.

New taxation of the metallurgical industry

There is reason to believe that the introduction of export duties will cause the economic activity of many metallurgical enterprises to experience a crisis.
First of all, the competitiveness of Russian metallurgical companies in world markets will decrease. According to some estimates, the export-oriented Novolipetsk Iron and Steel Works (NLMK) and Rusal will suffer the most. Rusal said that the introduction of duties will make the production of some types of products unprofitable, and the company's losses could amount to several hundred million dollars. For non-ferrous metallurgy companies, the capacity of the domestic market is limited; they will not be able to increase supplies to the domestic market. Some types of ferrous metal products (semi-finished steel, cast iron), subject to duties, are practically not supplied to the domestic market and are almost entirely exported. For example, the Industrial Metallurgical Holding (IMH) occupies almost 13% of the world market and exports more than 90% of the produced iron. As a result, not only this manufacturer, but also many others will find themselves in worse conditions compared to foreign competitors. And this despite the fact that a number of domestic companies are already limited in foreign markets by anti-Russian sanctions and numerous anti-dumping measures.

In addition, not all metallurgical enterprises received excess profits, which the state plans to seize. Thus, in the metallurgical industry today there are enterprises operating on the verge of profitability, bordering on bankruptcy. In addition to Rusal, the Abinsk Electrometallurgical Plant, Amurstal and Ashinsky Metallurgical Plant reported the risk of shutdown. This decision will also negatively affect the implementation of investment programs of metallurgical companies. A reduction in profits of at least 20-25% is possible.

In addition, according to preliminary estimates, the decision may lead to a decrease in income tax revenues to regional budgets by 45-55 billion rubles, and to the federal budget by 13-16 billion rubles. The functioning of the metallurgical industry is also complicated by the fact that in 2022 a new taxation system for the metallurgical industry will replace the introduced temporary export duties on ferrous and non-ferrous metals. In September 2022, the Russian Government approved a mineral extraction tax (MET) on ore of 4.8% for the next three years. In addition to the increase in the mineral extraction tax and profit tax, it is proposed to introduce a previously non-existent excise tax on liquid steel in the amount of 2.7% of the export price of slabs. The government has agreed with companies in the steel market on a compromise option for increasing the tax burden on the sector from 2022.

There was a separate confrontation over the introduction of an excise tax on liquid steel and a tax on the extraction of iron ore. Business insisted on a rate of 2.96% on ore and an excise tax of 2.5% of the export price, while the state proposed a rate of 5.5% and a 3% excise tax. By changing approaches to the mineral extraction tax and introducing an excise tax on steel, the authorities expect to collect into the treasury for 2022–2024. more than 500 billion rubles. In particular, the explanatory note to the bill amending the Budget Code states that additional revenues of the budget system in terms of the mineral extraction tax and the introduced excise tax on liquid steel in 2022 will amount to about 179 billion rubles, in 2023 - 173 billion rubles, in 2024 — 170 billion rubles. According to our estimates, excise taxes alone will cost the steel industry $500–800 million annually, which will quite seriously reduce company profits. Ferrous metallurgy companies will suffer significantly, where EBITDA losses from new taxes in 2022 will amount to 8-10% (currently about 5%). The non-ferrous metals industry was less affected: aluminum ores were excluded from the tax reform project.

Schematic diagrams of metal production

The metallurgical process is the production of metals, alloys, chemical compounds of metals, as well as metal-containing intermediate products.

The initial raw materials for the production of most metals are ores, for the processing of which a technological scheme for metallurgical processing is developed, i.e. sequence and optimal conditions of processes under which the highest technical and economic indicators in terms of cost and metal quality are achieved.

There are hundreds of different technological schemes for obtaining metals, but the fundamental essence of all schemes is the same - the separation of metal from waste rock and related elements. It is advisable to divide the entire complex of operations included in the technological schemes into four stages, in each of which a specific task is solved:

• the first stage is the production of ore concentrate by mechanical methods (crushing, grinding, enrichment);
• the second stage – obtaining a “chemical” concentrate (roasting, sintering-decomposition, dissolution, precipitation, smelting, etc.);
• third stage – obtaining a “rough” metal or its chemical compound (chlorination, rectification, extraction, sublimation);
• fourth stage – obtaining pure metal (chemical and physical cleaning methods).

At the first stage of the process, the ore mineral is separated from the gangue by beneficiation methods, as a result of which the ore is divided into two parts: a concentrate, which contains the bulk of the ore mineral, and tailings, consisting mainly of gangue.

At the second stage of the scheme, the remaining amount of waste rock is removed using chemical and metallurgical methods. The result of this stage is the production of either a chemical compound of a given metal or a metal alloy.

At the third stage, in some schemes a rough metal (contaminated with impurities) is obtained, in others a pure chemical compound of the metal is obtained, which is the starting material for obtaining pure metal at the last stage.

At the fourth stage, pure metal is obtained by reducing the corresponding chemical compound or by purifying the “rough” metal.

Obtaining metals is a difficult task, and it becomes significantly more difficult when processing poor or polymetallic raw materials. The most complex technological schemes are typical for the production of non-ferrous metals.

conclusions

Despite the unprecedented market situation due to the global pandemic, Russian metallurgical companies increased steel production by 2.5% in 2022.
A significant weakening in steel demand was caused by the COVID-19 pandemic and government measures to counter the spread of coronavirus; Throughout the period, weaker price dynamics for metallurgical products prevailed, which led to a decrease in sales volumes in 2020. However, in the second half of 2022, steel prices recovered as countries gradually emerged from quarantine, and in the first half of 2022, rising steel prices allowed companies to increase revenue and profits, restoring pre-pandemic levels. The ongoing impact of COVID-19 on the global economy is likely to remain the leading factor driving steel demand throughout 2022 and into 2022. The nature of demand will depend on the introduction/intensification of quarantine measures, the timing of recovery of individual market sectors and the impact of potential government stimulus measures around the world, including investment in infrastructure.

Open hearth process

This is another popular method for producing quality steel. The bottom line is that melting is carried out on a hearth in a reverberatory furnace. It is pre-equipped with regenerators, which are necessary for heating air or gas. We can say that the very idea of ​​​​such smelting appeared quite a long time ago, however, the open-hearth steel production process requires high temperatures, which could not be achieved in any way. But already in 1864, regenerators were used for the first time, which showed their best performance.

To obtain steel, a charge is loaded into an open-hearth furnace. It consists of scrap, scrap and cast iron. As a result of exposure to high temperature, after some time the charge is melted, and then special additives are supplied. They are needed in order to give the steel the necessary performance properties. The finished product is cast into ladles and transported to its destination. Since the open-hearth method is quite effective and does not require large expenses, it very soon became the main one almost all over the world.

4. Technical and economic features and factors influencing placement

1. Material intensity - the cost of materials per unit of production.

The consumption of initial ore raw materials is high, so metallurgy enterprises are located near sources of raw materials. For example, to produce 1 ton of steel, 5 tons of ore are required, and to produce 1 ton of tin, more than 300 tons of ore are required.

2. Energy intensity – energy costs per unit of output.

Many enterprises of the complex are located near sources of cheap electrical energy, because production requires a lot of energy. For example, to produce 1 ton of aluminum you need 17 thousand kWh, and to produce 1 ton of titanium 30-60 thousand kWh of electricity.

1. Labor intensity – labor costs per unit of production.

On average, a metallurgical plant employs from 20 to 40 thousand people, and this is the population of a small city.

2. Concentration - concentration of large volumes of production in one enterprise.

More than 50% of ferrous metals and 49% of non-ferrous metals are smelted at 5% of industrial enterprises. Such a high concentration helps to reduce the cost of products, but makes it difficult to respond to market changes.

3. Combination - the combination at one enterprise, in addition to the main production, of production related to the main one technologically and economically.

In addition to metallurgical production, the metallurgical plant includes the production of cement and building materials, and the production of nitrogen fertilizers.

4. Environmental factor – negative impact on the environment.

About 20% of air emissions and wastewater. Ferrous metallurgy accounts for 15% of industrial emissions into the atmosphere and 22% for non-ferrous metallurgy

5. Transport factor - a modern metallurgical plant receives and sends the same amount of cargo as a large city, so it cannot operate without a railway.