Investigating Decreased Steel Production: Insights on Russia's Reduced Steel Output
"Steel Struggles in Russia: A Crunch Time for Producers"
Russian steel production took a hit in the first quarter of the year, plummeting by 3.8% to 17.7 million tons, according to Rosstat data. In March, the downturn was even more pronounced, with a 4.7% decrease to 6.1 million tons. The causes behind this slump are far from metal dust and sparks; analysts suggest that the decline in global steel prices, a high key interest rate, and reduced domestic demand have all played a role.
Cash-Strapped Customers and Slumping Prices
One major factor contributing to the problems in Russia's steel industry is the global steel market's decline, experts assert. In Q1 of 2025, global production saw only a minor 0.4% decrease compared to the previous year, reaching 468.6 million tons. However, this decrease in production in Russia and other major steel-producing countries—such as Japan, the US, South Korea, Germany, Turkey, and Iran—was more than offset by an increase in China, which manufactures nearly half of the world's steel. This surge in Chinese production, coupled with US tariffs and a stagnant European market, has led to a flood of cheap Chinese steel, driving down prices.
"China is dumping its products onto the market, and the closure of the US market due to tariffs is causing prices to plummet in other parts of the world," says independent expert Maxim Khudalov. In China, the price for hot-rolled products currently hovers around $450 FOB, down from about $500-$600 per ton in 2024. With prices approaching the $400 per ton mark, market participants view this trend as a sign of overproduction in the industry.
Russian producers aren't alone in their struggle; market analyst Boris Krasnожеnov agrees that Chinese exports continue to have a negative impact on global prices. Meanwhile, he notes that on the Shanghai Stock Exchange, lease rates plummeted to $440 per ton at the end of April. "In these conditions, it's difficult for metal producers in other countries to raise prices, and as a result, they've sunk to levels not seen since the mid-2000s, except for Europe and the US," Krasnоженov says.
Before 2022, Russia exported around 40% of its steel products. However, falling prices on external markets and logistics issues have caused exports to drop significantly, Krasnоженov explains. According to him, large producers like Magnitogorsk Iron and Steel Works (MMK) and Severstal currently export no more than 10-15% of their products. Novolipetsk Iron and Steel Works (NLMK) is the only company not subject to sanctions and could maintain its export volume, although it doesn't disclose the data.
Balancing Act: Demand and Supply
Until recently, Russian steel producers exported around 25% of their black metal products monthly, according to Khudalov. He notes that prices are comfortable for producers when they exceed $500 per ton, as the real cost of producing 1 ton of rolled products is in the range of $400 per ton. Therefore, current prices, including transportation costs, leave producers with a near-zero profit margin. Additionally, the increased Chinese rolled product supply and a strengthening ruble contribute to the decrease in exports.
"Exports in the first quarter could have decreased by a third due to falling prices and decreased sales volumes," Khudalov estimates. Although there are no official quarterly export figures yet, from January to February, black metal exports from Russia dropped by 10% year-over-year, or to 1.3 million tons.
The construction industry's overall trend remains grim, with developers scaling back projects due to high lending rates and cautious expectations. Dmitry Skryabin, a portfolio manager at UК "Alpha-Capital," says, "The steel production industry is experiencing tense fundamental conditions." Steel production fell by 3.8% year-over-year in Q1, and Russia's internal demand is supported by two sectors: the defense industry and construction, automotive, and modest exports. However, these growth drivers are not enough to prop up the industry, as demand decreases in other sectors, leading to a systemic process that could result in stagnation.
Independent expert Khudalov echoes this sentiment, stating that the construction sector is stagnating due to reduced investment activity, cash shortages, and high logistics costs. Evraz's decision to pause one of three blast furnaces and close one of two oxygen-converter shops at its Western Siberian subsidiary is a clear indicator of this sluggish demand.
Russian steel construction is in a state of unstable anticipation, according to Dmitry Eremeev, Evraz's Market Demand Development Director. The number of projects in the concept development and design stages continues, but he stresses that signals from the Central Bank and the government indicating a gradual decrease in the key rate of the Bank of Russia would be necessary for the projects to move forward. Otherwise, the slow but steady decline in metal construction volumes in the coming months will continue, as companies confront difficulties in attracting financing.
In a nutshell, the decline in Russian steel demand is due to an economic slowdown, reduced construction and machinery-building activity, high interest rates, falling domestic consumption, low export margins amid global price pressures, and currency effects—all combining to create a challenging environment for the steel industry in Russia[1][4][5].
The new conditions in the global steel market are proving to be a financial burden for Russian steel producers, as they grapple with slumping prices and reduced demand. With cheap Chinese steel flooding the market and high-interest rates stifling domestic demand, the industry is struggling to maintain profitability.
In an effort to adapt, Russian steel producers are prioritizing domestic sectors with stronger demand, such as the defense industry and construction, while simultaneously exploring new avenues for growth within this testing economic climate.
