Severstal to Export Chinese Steel to EU to Avoid the Utmost Anti-dumping Tariffs

By Marina Romanova

Russian steelmaker found the way to lower the effect of severe anti-dumping duties levied by the EU on Russian steel in August 2016. According to Vadim Larin, chief executive of Severstal, Russia’s fourth-largest steelmaker, the firm is exporting Chinese cold rolled steel to the European Union instead of Russian one, because EU anti-dumping duties on the Chinese product are much lower.

The levies against Russia range from 18.7 percent to 36.1 percent and those against China range from 19.7 percent to 22.1 percent, depending on the company. Among Russian exporters, Novolipetsk Steel is subject to the maximum rate of 36.1 percent, Severstal faces a 34 percent levy and Magnitogorsk Iron & Steel Works has an 18.7 percent duty. Among Chinese exporters, Shougang group faces a 22.1 percent rate, while Angang Steel is subject to a 19.7 percent duty.

“We’ve started buying Chinese cold rolled for our steel service centers. There are very low duties on Chinese (cold rolled) so we’re better off bringing (the steel) in from China,” Reuters reports Vadim Larin as saying.

Anti-dumping duties against Russian and Chinese non-stainless steels will be in place for five years and for the first time was levied retroactively. The move, according to the EU commission spokeswoman Mina Andreeva, “was needed to fight unfair imports of steel products.”

China’s steel groups Shougang and Angang along with Russian operators Severstal, Magnitogorsk Iron & Steel Works, and Novolipetsk Steel PJSC are among those targeted. Cold rolled steel is used in products from washing machines and air-conditioning equipment to automobiles, power lines and construction.

Bloomberg earlier reports the Chinese and Russian companies have allegedly sold cold-rolled flat products of iron or non-alloy steel for some €4.5 billion (US$5 billion), below market cost in the EU, a practice known as dumping. European countries say the below market costs of “a flood of steel” and subsidies put thousands of jobs at risk.

Europe’s €166 billion (US$184.42 billion) steel production annual turnover accounts for 1.3 percent of the EU’s GDP and directly provides 328,000 jobs, according to the euobserver.com
According to the EU commission, Russian exporters expanded their share of the European market for certain cold-rolled flat products of iron or non-alloy steel, excluding stainless steel, to 9.8 percent in the 12 months through March 2015 from 5.9 percent in 2011.

Chinese and Russian combined share on EU market jumped to 20.1 percent from 14.3 percent over the period, commission said.

Larin said cold rolled steel sales to the EU accounted for around 2 percent of Severstal’s total sales, while hot rolled EU steel sales accounted for about 6 to 7 percent of the company’s total sales volumes.

China, the world biggest steel producing country, accounted for 50.3 percent of world steel production in 2015. Russia is currently the world fifth largest steelmaker.

According to some estimation, the nation demand for steel may rise for up to 2 percent next year, following a 5 percent drop estimated by Moody’s in 2016, after an 8.3 percent drop in 2015 according to the World Steel Association. Severstal said on April 18 domestic prices are about US$30 below those of exports.

The European Commission is also investigating alleged dumping of hot-rolled steel by producers in Brazil, Iran, Serbia and Ukraine. That could lead to duties imposed by April next year.

“If the (hot rolled steel) duties are imposed it will affect us. We will have to move volumes from Europe to farther regions and we will lose margins,” said Larin.

Although, the Moody’s outlook for Russia’s steel industry for 2017 predicts the volatile domestic steel demand, Russian steelmakers will remain competitive in export markets owing to their low costs in US dollar terms, backed by continuing operational improvements and the weak ruble, which reduce the cost of labor and materials paid for with the feebler currency. According to some estimate, Severstal spend about 50 percent less than rivals in Europe and China to produce every ton.

The Moody’s outlook also says that the main market players including Severstal, “will maintain a comfortable profitability cushion against any fall in steel prices as long as ruble weakness persists.”

As for now, Russian steelmakers and Severstal in particular, are doing quite well thanks to steady or higher output levels and a recovering global market. For the first nine months of 2016, Severstal’s records increased net profit to US$1.3 billion, rising from the net profit of US$676 million recorded in the same period of 2015, according to the company statement, which sells only third of its steel domestically.

Over the past 12 months, Severstal stock has risen 18 percent, which helped steel tycoon Alexey Mordashov, the main owner of Severstal, became Russia’s new richest man, passing metal billionaire Vladimir Potanin, according to the Bloomberg Billionaires Index. Potanin’s key asset, Norilsk Nickel, dropped almost three percent. Mordashov’s fortune raised US$126 million to US$15.7 billion on Monday October 30th, topping Potanin by US$200 million. Potanin’s fortune fell by US$70.7 million to US$15.5 billion.

Mordashov is 49th in the global billionaires rating.