Prospects for Russian metallurgy in 2018

Russian steelmakers boosted production in 2017 amid rising prices and demand following a two-year slump in the sector, although some analysts warn that the danger of a decline in the sector may be lurking around the corner.

A stronger Russian ruble, underpinned by a stronger oil price, could also pose a threat. The ruble rose nearly 8 percent in just 40 trading days, from 60.2 rubles against the dollar in mid-November to 56.2 by the middle of this month.

Two leading steelmakers NLMK and Evraz reported about 3 percent increase in 2017 output this week, while rival Severstal reported stable production at a five-year high on Friday.

TMK, Russia's largest producer of steel pipes for the oil and gas industry, said on Friday that shipments in 2017 were up 10.6 percent year on year.

The growth has occurred as the Russian economy begins to recover, and the world's leading manufacturer China restricts production in an attempt to cope with the smog, providing fresh air not only to Beijing, but also to Russian steelworkers.

“China, by diminishing its role in the global market, has created great opportunities for Russian steel companies,” said Sergei Donskoy, an analyst at Societe Generale. "I wouldn't be surprised if some of them show further growth."

However, Kirill Chuiko, head of metals and mining research at BCS Investment Bank, said the great opportunity could be coming to an end. Chuiko said a possible change in China's policy direction by mid-2018 and an increase in total global steel and coal production in general could lead to lower prices and profit margins.

“2018 will be the year of the hangover,” Chuiko said. “Everyone was happy, got drunk on New Years and regained their confidence. But this year ... we will see the market come back to reality. " According to Chuiko, steel prices are likely to fall by 25 percent, and coking coal prices will become even more significant.

Despite the fact that Russian steel producers are focused on the domestic market, they are dependent on exports to varying degrees. They were hit hard by the stronger currency at home.

Russian steelmakers are due to report their 2017 financial results in the coming weeks.