Ukraine Invasion: Three Key Factors Affecting Steel Prices

Russia's invasion of Ukraine, which began a month ago, has rattled steel markets in Europe. Nations across the world have come together to impose myriad sanctions on Russia; sanctions have also been imposed on neighbouring Belarus, which allowed Russian soldiers to advance through its territory on Ukraine.

Sanctions that obstruct Russia's businesses and banks from accessing financial systems are having the most impact on steel markets. As these sanctions prevent Russian businesses from receiving payment for steel and the energy required to produce it, the availability of these commodities is subject to a significant reduction.

Key factors that are driving up steel prices include:

Energy Costs

Around 40% of natural gas imports in the EU originate from Russia, mostly via the Nord Stream 1 pipeline. After Russia invaded Ukraine, the Nord Stream 2 project (which was intended to double gas flow into Europe) was stopped by Germany. Any further sanctions on the supply of gas is set to make energy prices even higher; Dutch TTF Gas Futures prices, the European benchmark, have risen to over £167 per MWh since the invasion began. This figure is more than 50% higher than the peak recorded in December of 2021.

Oil prices have also been affected. Russia is the world's second-largest exporter of crude oil and Brent Crude Oil Futures have risen by over 30% since the beginning of Russia's invasion of Ukraine. The price of fuel is thus set to escalate dramatically, increasing the cost of road and shipping transport for both steel and raw materials.

CIS Steel Supply Chain

Last year, more than 8.39 million tonnes of semi-finished steel was imported into the UK and the EU; of this, over 85% originated from Ukraine, Russia and Belarus. In addition, more than one million tonnes of blooms and billets originate from these countries.

A short-term deteriorating supply of finished steel is predicted, with the availability of rebar, merchant bar and plate being the most severely impacted. MEPS envisages that around 57% of plate import volumes are set to be removed from the global market, with merchant bar and rebar volumes dropping by 40%. Alternative supply sources are being sought by European buyers but prices will inevitably rise as more consumers are forced to use a diminishing number of suppliers.

Investor Confidence

The uncertainty surrounding the continuing invasion of Ukraine and the possibility of further sanctions against Russia is affecting the confidence of investors, which is likely to reduce to amount of capital spent on steel-intensive projects. Industry participants in major sectors such as construction and automotive have pointed out 'renewed pressures' on the availability of both raw materials and crucial steel components.

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