Alarm Raised as Russias Steel Industry Faces Severe Downturn Amid Economic Challenges

The leader of one of Russia’s major steel manufacturers has issued a warning regarding potential production reductions and factory shutdowns in the nation’s steel sector, attributing the issues to a rising ruble and elevated interest rates that are undermining sales and profitability.

The steel sector, responsible for over 600,000 jobs and contributing roughly 10% to Russia’s export income, has historically been a cornerstone of the country’s heavy industry.

During his address at the St. Petersburg International Economic Forum on Thursday, Severstal CEO Alexander Shevelev indicated that the industry might struggle to sell as much as 6 million metric tons of steel this year, which represents nearly 10% of last year’s overall production.

He noted that the forecast for domestic steel usage suggests a drop in demand from 43-45 million tons to just 39 million tons this year.

«Essentially, we are witnessing the loss of an entire industry’s worth of demand,» Shevelev remarked.

Concurrently, the export of steel has become less viable due to the swift rise in the ruble’s value.

«The industry… is virtually unable to export metal products today due to economic unfeasibility,» Shevelev said.

He mentioned that an exchange rate of 90-100 rubles per dollar, along with a lower key interest rate, would help steel manufacturers remain competitive and rejuvenate activity in industries that consume steel.

«However, it seems that we are heading toward production stoppages at some facilities, particularly those facing high production costs,» he cautioned.

As reported by the World Steel Association, Russia’s steel output fell by 8.6% in 2024, marking the most significant decline among major steel-producing nations, with an additional 7.2% drop in the initial four months of 2025.

Since the full-scale invasion of Ukraine, Russian steel exports have decreased by over a third, from 32 million tons in 2021 to 20 million tons in 2024.

Analysts suggest that the downturn has reached critical levels. A report from investment firm BCS indicated that export prices for Russian steel have dropped by 5% in dollar terms and 26% in rubles since January. Meanwhile, a slowdown in construction has reduced domestic demand.

Leading manufacturers are already experiencing losses. Novolipetsk Steel (NLMK) reported a loss of 0.3 billion rubles ($3.9 million) for 2024, while Magnitogorsk Iron and Steel Works (MMK), Russia’s largest steel supplier, incurred a 1.2 billion ruble ($15.6 million) loss during the first quarter of this year.

Severstal maintained profitability with earnings of 11.9 billion rubles ($154.7 million) from January to March, but reported a negative cash flow of 33 billion rubles ($429 million).

In response, the government is exploring tax relief options and regulatory changes to assist the industry.

Industry and Trade Minister Anton Alikhanov stated this week that Moscow is considering adjustments to the excise tax structure for liquid steel as part of broader measures to alleviate the pressure on producers.

«Currently, the exchange rate has regrettably become a barrier for exporters,» Alikhanov remarked. «We believe it’s time to optimize the fiscal load on the metallurgical industry and reduce the regulatory burden.»