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“Sanctions are coming one after another – for the moment we do not know how to react, and trade is paused,” one international trader said.
US President Joe Biden issued an executive order on February 21 that, among other things, prohibits new investment, trade and financing between US persons and the so-called Donetsk and Luhansk People’s Republics (DNR and LNR).
On February 22, UK Prime Minister Boris Johnson said that the UK is also imposing sanctions on five Russian banks, and three individuals.
Germany, on the same day, halted approval of the Nord Stream 2 gas pipeline from Russia.
A second international trader, however, characterized these current measures as “only baby sanctions,” saying that if no further sanctions are imposed, there should be no impact on steel and pig iron exports from Russia.
“Although,” he added, “if the situation escalates and serious sanctions, like exclusion from SWIFT, take place then we will see much lower shipping from Russia.”
“A lot of customers have withdrawn from the market and expect some correction in the price,” a third trader said. “The risk of a Russia/Ukraine war is making business with the CIS less attractive.”
Fastmarkets’ weekly price assessment for steel hot-rolled coil, export, fob Black Sea, CIS was $880-900 per tonne on Monday, down from $895-905 per tonne a week before, on muted trade and competition with other suppliers.
Demand, mainly for Russian steel products, has been impacted, another source said.
There could also be interruptions in shipments from the Black Sea, which exporters from Ukraine may face as well, and exported steel and raw material trade with Russia may be sanctioned in the event of further escalations in the conflict.
The political situation has also affected the currency exchange rates for both Ukraine and Russia.
The hryvnia was trading at $1 to UAH28.33 on February 22 compared with $1 to UAH28.14 on February 20, according to exchange rate website Oanda.com.
The rouble was trading at $1 to 78.28 roubles on February 22, compared with $1 to 77.34 roubles on February 20.
“Potentially, the weaker rouble should make exports more attractive for Russian steel makers,” one source from Russia said. “Although, where can they increase exports if a lot of buyers are afraid to touch the material? Some regions, like Asia, are less sensitive to Western sanctions, so trade flow there may increase.”
Starting from mid-February, before the political situation got as tense as it has since become, when the first sanctions were imposed, opening letters of credit (LC) in international banks for Russia-origin cargoes was already becoming difficult, Fastmarkets heard.
“Banks are studying LC applications for Russia-origin material much longer now and having stricter restrictions, like adding a war-clause requirement in insurance policies before they accept the LC terms,” one steel trader said.
As of February 22, it has not only become more complicated to open an LC, several sources said, but some banks have already declined financing some deals due to risk.
There are difficulties opening LCs for Ukraine-origin cargoes as well, one source said.
Vlada Novokreshchenova in Dnipro contributed to this report