Market Monitor - Focus on the steel industry - Russia

Marktmonitor

  • Russland
  • Stahl

01 09 2014

Russian domestic consumption of steel products has developed better than demand from overseas markets.

    

Russia

  • No impact from the Ukraine crisis – so far
  • High business indebtedness becoming an issue
  • Rising payment delays and insolvencies in the coming months

 

According to the Russian statistics agency, Russian steel output decreased 2.3% in 2013, to 68 million tons. In the period January to April 2014 production increased again, by 1.5%, to 22 million tons. However, in US$ terms export of steel/metal products decreased 2.7% in Q1 of 2014. Since exports - mainly to China and other Asian countries, but also to Western Europe - are highly important for the industry, this is not good news. In line with the global trend, the industry is suffering from the falling export prices of steel/metals products.

On the plus side, Russian domestic consumption of steel products has developed better than demand from overseas markets. In particular, we have seen growing demand from industries such as automotive and machinery, consumer and household products. However, while the Russian construction sector - as a major steel buyer - improved its payment discipline notably in Q1 of 2014, this sector now shows a deteriorating trend. Several major construction companies are on the verge of default, e.g. those involved in Sochi Olympic Games construction projects.

So far, there has been no direct impact from the Ukraine crisis and the related sanctions imposed by the US and the EU on the steel/metals sector. Indeed, local producers may even benefit from protectionism, as Ukrainian competitors, which are quite strong, will find it hard to stay in the Russian market, while government spending on infrastructure will remain the same or even increase.

However, in the medium and long term, the steel/metals market is expected to be negatively affected by a rouble devaluation, lower domestic demand, lack of liquidity and the rising cost of borrowing.

The overall high indebtedness of the steel/metals sector is a weak point and banks (including state banks) have adopted more restrictive lending policies in the current situation. A number of larger metals and mining groups now have accumulated a very significant debt burden over the previous upward phase of the steel/metal market cycle – and some of those may not be able to refinance their large debts. While the Russian government is ready to provide financial support, its reserves, though ample, are limited.

The value of overdue trade creditor debts of domestic metal production companies increased 33% year-on-year in Q1 of 2014, and we expect payment delays and insolvencies to increase in the coming six months. Therefore, our underwriting stance on the steel/metals sector has become restrictive to protect our customers.

 

Industry performance

Changes since July 2014


Europe

Russia

Agriculture:  Up from Poor to Fair
Good harvest, increasing prices and large state support.

Automotive:  Down from Good to Fair
After several years of solid growth the local car market is declining quite sharply.

Consumer Durables:  Down from Good to Poor
Falling demand and sales have led to squeezed margins and several bankruptcies.

Electronics/ICT:  Down from Fair to Poor
Falling demand and sales have led to squeezed margins and several bankruptcies.

 

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