The impact of the conflict in Ukraine on Metal Supply Chain

First of all, as an international trade company, we Enserve wish for the peace in Ukraine and pray for many lives lost. We wish the situation will improve for all of who suffer from the current status.

They have been disrupted. This article introduces the news of metal Supply Chain disruption. Before going to the details, the production of steels, aluminum, and copper from both Russia and Ukraine rank high positions for worldwide production.

Russia ranks No. 5 and Ukraine ranks No. 14 in world steel production rankings (reference).

Russian steel mills by size : NMLK (Novolipetsk Steel), Evraz, MMK (Magnitogorsk Iron & Steel Works), Severstal, and Mechel (reference).

Ukrainian steel mills by size : ArcelorMittal (fomer Kryvorizhstal), Metinvest (subsiduaries are Azovstal, Illich, Yenakiyeve, Khartsyzsk) (reference).

The basic characteristics of Russian and Ukrainian steel mills are, low raw material (iron and ore) costs acquired domestically, relatively primitive steel products such as slab, billet, and bloom. Russian steel mills are located in inland due to raw material production while Ukrainian steel mills are close to ports such as Mariupol. Here is the list of current status of repetitive mills as of Apr 20 2022.

Many Ukrainian steel mills are concentrated on Ukrainian South East area. Thus they have difficulties in production due to the conflict. Some plants restarted production yet further recovery is unknown yet.

1. ArcelorMittal has decided to restart its operation in the south east region (Source). ArcelorMittal itself is multinational company HQ in Luxemburg. Thus its going concern is not materially impacted.
2. Metinvest has continued production at some plants (Zaporizhstal and Kamianske in the south east region), while other factories seem to close. Metinvest is Ukraine base holdings. Its going concern depends on current conflict situation (Source). Some of its subsidiaries, such as Azovstal steel plant, are current battle field and expected to take long time for reconstruction.

The West has imposed sanctions on some of Russian share holders and ban of import of Russian steels. Over all, steel mills might find ways to survive due to less dependency of sales on the Western Markets. Russian mills mostly procure raw materials (coal, iron ore etc) domestically and export to the West less than 30% of their total sales. There might be a risk of default of debt payment in dollar terms, as long as there are sanctioned individuals who are stake holders of those mills.

1. NMLK has not been the subject of the sanction as of April 6 (Source). Even if the sanction is imposed, from sales point of view, the impact would be relatively moderate since NMLK’s shares of sales to North America and Europe is 30% of total sales (Source). NMLK is facing challenges in terms of payment with oversea customers due to the ban of SWIFT system and increasing costs due to devaluation of Russian Ruble.
2. Evraz has lost 10 board members including the largest share holder after the sanction announcement. It technically has freed Evraz from the subject of sanction. Evraz possibly supplies steels to Russian Military, which Evraz denies (Source). Evras as a corporation may find ways to continue since its sales share to North America and Europe is 30% of its total sales (Source).
3. Severstal had difficulty in dollar-term debt payment due to a large stake holder was sanctioned. It infers that As long as a steel mill is partially owned by sanctioned individuals, the steel mill is unable to make payment to the Western banks (Source). Severstal also has sales shares to Europe around 30% of total sales (Source). Like other Russian steel mills, Severstal might find other sales destinations to Asia and Middle East, etc.
4. A Magnitogorsk’s share holder has been the target of sanction (Source). Magnitogorsk as a corporation will be affected little due to sanctions since 90% of its sales come from Russia or Former Soviet Unions (Source not available on 2023 April).
5. Mechel as a corporation will be affected little due to sanctions since Mechel’s sales share to Europe is less than 20% of its total sales (Source).

Lastly, Enserve strongly wish to terminate the conflict as soon as possible and pray for those who lost lives. Enserve will be more than happy to support reconstruction of Ukraine.