Steel trades are continuing strong and should see an increase in tonne-miles. With Europe effectively banning steel imports from Russia and Belarus in response to the war in Ukraine, the bloc will need to look elsewhere for volumes, especially as domestic production slows due to higher input costs. According to ship brokerage Braemar ACM, the increased volumes could come from China, which more than doubled its shipments to Europe last year to 1.5 MMT. That will benefit the supramax segment. “As easing domestic demand in China persists, there will be more opportunity to export out of the country,” said dry bulk analyst Mark Nugent. In addition, since the European Union has a quota system in place, Turkey and India are set to be allocated additional volumes as the Russian quota gets redistributed.

Europe imported an average of 467K tons per month from Russia in the 12 months before the invasion, accounting for 25% of European steel imports, according to Braemar. That equated to 5.6 MMT in 2021. The rest of Russia’s 30 MMT steel exports — half of it finished and the other half semi-finished — moves to neighboring Belarus and Kazakhstan, and to Turkey, Egypt, and Mexico, according to Banchero Costa. Exports to these countries should probably “continue more or less as normal, despite short term disruptions from payments and insurance issues”, head of research Ralph Leszczynski said.

The volumes which head to western Europe will probably be directed to the Middle East and North Africa, with not much difference in terms of tonne-miles, he said, adding that he did not expect much volume to shift to Asia as the market there was saturated with competitively priced Chinese and Japanese cargoes. In the longer-term, high-energy costs could affect European steelmaking, as energy accounts for 15% of production costs, he said. In the first two months of this year, steel output in the 27-nation European Union fell 2.2% to 23.8 MMT, according to the latest statistics from the World Steel Association. Furthermore, output from other countries in Europe dropped 4.8% to 7.8m tonnes.

Of the top 10 steel-producing countries, only India, Germany, Iran, and the US showed growth in February versus the same time last year. China’s output fell 10% to an estimated 75 MMT. Global steel output meanwhile fell 5.7% to 142.7 MMT last month, mostly led by the decline in China. Although seaborne steel trade will not repeat the growth seen last year, as global economies recovered from the worst of the pandemic, the volumes should “remain robust on arbitrage plays”, according to Arrow Shipbroking, Since the start of the Ukraine conflict, the spread between US and Chinese steel prices has widened to $700 per short tonne from $250, which is an indicator of increased backhaul volumes. “Supply-chain backlogs and high durable goods consumption is keeping demand for industrial commodities like steel very strong and this should keep seaborne steel demand above trend,” said the brokerage’s research analyst Harry Grimes, while a more “relaxed production environment” in China should maintain seaborne trade over the coming year.

Steel product volumes rose 20% last year, leading tonne-miles to rise 37%, mostly to the benefit of supramaxes. While such a big jump in tonne-mile demand is unlikely, the current level of demand could be sustained during 2022, Mr Grimes said, as European buyers switch from the conflict region to Asia. “The loss of many Russian and Ukrainian cargoes this year may not be fully offset by other origins as rocketing steel prices suggest, however, the longer distance of additional Asian cargoes will likely maintain tonne-mile demand,”  he added.

According to Braemar, seaborne steel trades increased 5.2% to 12.1m tonnes in February versus the same time last year, buoyed by exports out of Brazil, to the US, and increasing exports from Japan to Thailand, Mexico, and the US.