On August 2, the United States officially
added integrated steelmaker Magnitogorsk Iron & Steel (MMK) and its
chairman Viktor Rashnikov to its list of sanctioned entities. The move is yet
another punitive measure in response to Russia’s February invasion of Ukraine,
in hopes that the steel manufacturing sanction will place more economic pain on
Russia.
The announcement came from The Office of
Foreign Assets Control (OFAC), part of the US Department of the Treasury. It
was part of a new round of sanctions targeting individuals and entities close
to the Kremlin. In this case, many of the targeted companies are major revenue
generators for the Russian regime. The office added that Rashnikov had “also
been sanctioned by Australia, Canada, the EU, Switzerland, and the UK.”
Steel Manufacturing: MMK is a Major
Russian Steel Producer
There’s no escaping the fact that
Magnitogorsk Iron & Steel manufacturing plant is one of the largest
steelmaking facilities in the world. According to OFAC, Magnitogorsk Iron &
Steel remains another major taxpayer who helps keep the Russian government’s
coffers full. As of the August 2 notice, parties have until September 1 to wind
down any current transactions with MMK or its subsidiaries. This includes any
asset in which the Russian company holds a 50% stake or more, be it directly or
indirectly.
According to a February 28 report, MMK
produced almost 14 million metric tonnes of crude steel last year. This
represented a 17% increase year over year, which is hardly insignificant. Most
of this is cast into billets and slabs for sale or rolled into various flats
and longs products. The company also reported a full-year EBITDA of $4.29
billion, up by 188% from the nearly $1.5 billion it earned in 2020.
Revenues in 2021 were 85.6% higher ($11.9
billion) then 2020, when the company brought in just $6.4 billion.
New Sanctions Spread to MMK’s Turkish
Subsidiary
The latest sanctions also extend to the
Russian group’s subsidiary MMK Metalurji, which is located in south central
Turkey’s Hatay Province. This is significant as MMK Metalurji has an HDG line
with a capacity of 900,000 metric tons per year. The site can also roll around 755,000
metric tons of cold rolled coil annually. Further downstream, the site can
produce up to 400,000 metric tons of pre-painted, galvanized coil.
MMK Metalurji can also roll 2.3 million
metric tons of HRC per year thanks to an electric arc furnace on site. However,
it’s important to note that the hot end underwent testing in 2021 after being
off stream since 2012 due to poor economic conditions. Either way, this
represents more than just a little “collateral damage” in the steel market.
However, as far as OFAC is concerned, any parties having business dealings with
MMK Metalurji or any of its 50%-held assets have until January 31, 2023, to
wind down transactions.
Insults Aside, Experts Predict the Move
Will Have Minimal Effect
MMK said in an August 3 statement that it
considers the sanctions against the plant and Rashnikov “unreasonable and counterproductive.” “The
company is studying the decision taken by the US authorities, assessing its
potential effect and the possibility of challenging the imposed sanctions by
all available means,” the company said.
However, according to one analyst, the
sanctions will likely have little to no effect on the company. “MMK was very
poorly represented on the US market,” the source said. “The distance from
Magnitogorsk to the United States also makes logistics difficult. Whereas rail
connections to China make it an attractive export market for the steelmaker.”
It makes a lot of sense. After all, MMK
is in Chelyabinsk region, which averages about 2,650 kilometers (1,646 miles)
from ports like St. Petersburg, Kaliningrad, and Novorossiysk. These are the
nearest places where the Russian steel gets transferred to ships for further
transport. And given these logistical demands, it’s not surprising that the US
doesn’t see much of the company’s product.
It’s also worth noting that back in
April, MMK announced plans to increase cooperation with markets in Central and
Southeast Asia. Here, as in China, the risk of sanctions is virtually
nonexistent.
By AG Metal Miner
Oil price