Low steel prices devalued the advantages of Russian metallurgists from the weakening of the ruble

Steel prices plummeting to the lows of this millennium wiped out the advantages of Russian metallurgists from the 50% devaluation of the ruble. As noted in BCS Financial Group, the short era of prosperity for the steel industry in Russia at the end of last year - early this year, when metallurgists incurred expenses in depreciated rubles, and received payments for rolled metal in dollars and euros, is coming to an end.

The future of the Russian metallurgical industry is becoming more and more hazy with a drop in consumption in the domestic market and an increase in protectionism in the foreign market.

“The magic of the effect of the ruble devaluation on the earnings of steel companies, which we saw at the beginning of the year, has disappeared,” said Kirill Chuiko, head of stock analysis at BCS Financial Group. Now the metallurgists of the Russian Federation will have to reduce domestic prices to compete with foreign suppliers.

At the same time, the prospects for the domestic market are far from bright. According to the forecast of the World Association of Steel Producers, which coincides with the vision of the situation in PJSC Severstal by Alexey Mordashov, in 2015 Russian steel consumption will fall by 10 percent and will continue to decline in the next.

According to Metal Bulletin Ltd., the price of hot rolled coil exported from the CIS countries is today at its lowest level since 2003 and there is no reason to expect an increase. Export prices for Russian steel have been falling every month since September 2014.

The country's metallurgical companies have invested billions of dollars in the modernization of their plants, and today Russia is capable of producing a record amount of high-quality steel. Imports of metal products to the Russian Federation decreased by 40 percent, but may start to grow again if metallurgists keep prices for the domestic market at the same level, since they are already 26 percent more expensive than imported ones.

Falling steel prices mean a reduction in profits for Russian producers in the domestic market with the same dynamics as for companies in Brazil, India and the United States, says Dmitry Popov, an analyst at CRU Group.

“Despite the weak ruble, Russian exporters will not be able to make more profit on foreign markets. They will increase exports only to support the physical volumes of production, ”Popov said.

BCS Financial Group last week reduced its forecasts for the value of shares of Russian metallurgical companies in the range from 19 to 79 percent.