Steel Industry Faces Dire Challenges Amidst Economic Turmoil in Russia

The leader of one of Russia’s major steel manufacturing companies has signaled that production reductions and factory closures in the nation’s steel sector are on the horizon, as a rising ruble coupled with high interest rates is stifling both demand and profitability.

The steel sector, which provides employment for over 600,000 individuals and contributes approximately 10% to Russia’s export income, has traditionally been a cornerstone of the country’s heavy industries.

At the St. Petersburg International Economic Forum on Thursday, Alexander Shevelev, the CEO of Severstal, stated that the industry might struggle to sell as much as 6 million metric tons of steel this year, representing a decline of nearly 10% compared to last year’s production figures.

He noted that the latest estimates for domestic steel demand indicate a decrease from 43-45 million tons to around 39 million tons for this year.

“That essentially equates to the complete loss of demand from an entire industry,” Shevelev remarked.

Concurrently, exporting steel has become economically challenging due to the significant appreciation of the ruble.

“The industry … today faces acute difficulties in exporting steel products, as it has become financially unfeasible,” Shevelev commented.

He suggested that an exchange rate of 90-100 rubles per dollar, combined with a lower key interest rate, would enable steel manufacturers to remain competitive and revitalize activity in sectors that consume steel.

“However, for the time being, it appears we are heading toward production suspensions at certain facilities, particularly those that are grappling with elevated production costs,” he cautioned.

The World Steel Association has reported that Russia’s steel output fell by 8.6% in 2024, marking the steepest decline among leading steel-producing nations, with an additional 7.2% drop noted in the initial four months of 2025.

Russian steel exports have plummeted by over a third since the extensive invasion of Ukraine, declining from 32 million tons in 2021 to 20 million tons in 2024.

Experts indicate that the situation has escalated to crisis levels. A report from the investment firm BCS highlighted a 5% decrease in export prices for Russian steel in dollar terms and a staggering 26% in rubles since January, compounded by a downturn in construction that has dampened domestic demand.

Major steel producers are already reporting financial downturns. Novolipetsk Steel (NLMK) recorded a loss of 0.3 billion rubles ($3.9 million) in 2024, while Magnitogorsk Iron and Steel Works (MMK), the largest steel producer in Russia, faced a loss of 1.2 billion rubles ($15.6 million) in the first quarter of this year.

Although Severstal remained profitable with earnings of 11.9 billion rubles ($154.7 million) for the January-March period, it experienced a negative cash flow of 33 billion rubles ($429 million).

In response, the government is exploring tax relief and regulatory changes to bolster the sector.

This week, Industry and Trade Minister Anton Alikhanov mentioned that Moscow is considering a revision of the excise tax model for liquid steel as part of wider initiatives aimed at alleviating the financial strain on producers.

“The current exchange rate has regrettably become a hurdle for exporters,” Alikhanov stated. “We believe the time has come to optimize the fiscal pressure on the metallurgical industry and lessen regulatory expenses.”