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Damage to Ukrainian steel plant further aggravates supply concerns in Europe

ICICI Securities 22 Mar 2022

What’s Buzzing:

One of Europe's biggest iron & steel works, Azovstal, has been badly damaged in the current Russia Ukraine conflict. Azovstal is situated in Mariupol, Ukraine.

Context:

Azovstal Steel is a part of the Metinvest group and has a steelmaking capacity of ~5.3 million tonne per annum (MTPA). The main products are plates, rails, structural, rolled plates and semi-finished materials. Majority of Azovstal’s steel exports are to Europe.

Our Perspective:

Russia and Ukraine are two of the major steel exporters globally. In CY21, both countries combined had steel exports of ~45 million tonnes (MT), accounting for ~10% of global steel trade. As the Azovstal plant has been badly damaged, European countries may have to source materials from other countries. Also, as most of the Russian finished steel exports are under EU sanction, hence, it is also out of the equation. Therefore, as a result of supply related fears, European steel prices have started moving northwards to record high level. Currently, the North European Steel Hot Rolled Coil (HRC) spot prices (ex-works) is quoting at ~1400 Euro per tonne against ~ 950-1000 Euro per tonne when the conflict started. The current scenario provides an opportunity to domestic steel players to step up their exports. Domestic steel players are likely to benefit from the uptick in prices, which will help them yield healthy realisations. JSW Steel and Tata Steel are the major Indian steel exporters, which are likely to benefit in the current scenario. Tata Steel’s European operations are also likely to be a beneficiary due to the uptick in European steel prices.

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