Posted on 06 Jul 2021
High steel and base metal prices will cushion the impact on domestic steelmakers of Russia’s prospective temporary export duty, says Fitch Ratings.
“However, if the measures are extended, the impact could be greater once prices moderate,” the credit rating agency says in a note seen by Kallanish. “We expect the new duty to have a limited impact on global metal prices, although steel and aluminium markets could be affected in the short term.”
The Russian government has proposed to levy an export duty on steel and metals of 15%, or a minimum rate of $54/tonne for hot-briquetted iron and $115/t for most steel products (see Kallanish passim). It will apply from August until December 2021 to all exports, other than those to the Eurasian Economic Union (EAEU).
Russian steel companies have material rating headroom in 2021 due to higher-than-expected steel and metal prices, Fitch observes. Furthermore, cash outflows related to the export duty are likely to trigger a reduction in dividends as the companies’ financial policies are linked to free cash flow levels.
Both NLMK and Evraz export about 50% of their domestically produced steel and will suffer a comparable impact. The impact on Severstal will be smaller due to its smaller exports and high proportion of high-value-added products, the agency observes.
Metalloinvest is export-focused but benefits from strong prices on exported iron ore products, which are not subject to the duty. MMK sells mostly domestically, while the EAEU constitutes a notable share of its total exports, Fitch points out.
“Some products, like pipes, are not subject to the duty and this means the impact on pipe producers is likely to be neutral to positive since the availability of domestically sourced metal will likely increase,” it adds. “Reduced steel exports from Russia may trigger a further price rise given strong global demand and constrained supply. Domestic steel prices will be driven by increasing export benchmarks, higher domestic supplies and lower netback levels.”
However, the domestic market will not absorb all additional volumes, especially of semi-finished products, and the country remains a net steel exporter, Fitch concludes.
Source:Kallanish
