Allen Timmons What Does it All Mean?
President Biden banned oil imports from Russia over the War in the Ukraine on March 8, 2022. Putin recently banned export on raw materials. So, what does it mean overall and what impact will it have on the steel industry?
The Russian invasion of the Ukraine pushed crude oil prices over $130 per barrel as of March 7, which threatens the recovery of an already fragile post-pandemic economy. Putin’s ban on raw materials also could ripple through the global economy adding to inflationary pressures as well.
While the USA is the world’s biggest consumer of oil, the amount of oil imported from Russia is relatively small (imports over a little over *% which is about 400,000 barrels per day from Russia at present). According to Goldman Sachs, volumes as low as this are “well within the market’s ability to redirect flows and, as such, we would expect minimal overall impact on crude fundamentals.”
The bigger issue is how it might impact exports of oil from the USA to South and Central America which typically comes from the US Gulf exports. This might lead to a “price on price competition for product with Europe, leading to a massive inflationary event for all regions involved.” according to Mike Tran, Analyst at RBC Capital markets.
The other issue is that the US is already seeing the impact of inflation and, while Russian imported oil may be small relative to the total imported by the US, it will put pressure on the price of oil and thereby pressure the consumer which is already feeling pressure from rising inflation.
How does this impact Steel Prices?
The market has been very volatile since the March 8 ban on oil that has impacted commodities, surging their prices significantly, especially when you look at metals. The chart below provides a visual into the surge of commodity prices.
Nickel has increased dramatically, which impacts the price of steel as well since nickel is a key alloy used in mills. Russia exports 28% of the world’s raw nickel and while Australia accounts for 15% and Canada 11%, there are no practical alternatives to Russia in the global marketplace for nickel, explaining the dramatic increase in price over the last two weeks. Due to the large percentage of export Russia has, these prices may remain high for some time.
Any increase in iron prices may be short lived because Russia overall only exports 5.2% and the Ukraine only 2.3% of global share in iron and steel. Other global players may be able to replace both nations export market and so medium to long-run these prices may recover.
A byproduct of steel manufacturing is Neon, which is central to the semiconductor industry. Russia and the Ukraine supply more than nearly half of the world’s neon, the USA chip industry is sourced 90% of their neon from the Ukraine.
The Ukraine’s largest steel manufacturer held out as long as it could. The Ukraine’s shut down of its largest mill on March 8 may also impact the neon market.
An already ailing semiconductor industry may see an even greater setback with the negative impact of neon shortages. This would have a ripple effect reaching far across the global economy.
