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U.S. Sanctions Russian Steel Giant MMK

U.S. Sanctions Russian Steel Giant MMK

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

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Aug 13, 2022 14:31
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