Japan Steel Giant Eyes Alternatives To Russia, Ukraine Iron Ore

Nippon Steel Corp., bracing for possible disruptions to its iron-ore supplies from Russia and Ukraine, is planning to make up any shortfall by buying more of the steel-making ingredient from alternative sources in Brazil and Australia.
About 14% of the company’s iron ore pellet feedstock currently comes from Russia and Ukraine, Takahiro Mori, executive vice president of Japan’s biggest steelmaker, said in an interview this week. Nippon Steel has been in discussions with other suppliers, including Brazilian giant Vale SA, to buy more as tensions in Eastern Europe increase, he said.
The geopolitical crisis has spurred fears of supply disruptions and surging costs of commodities from aluminum to wheat to fuels — and iron ore. After Russia invaded its smaller neighbor on Thursday, Ukrainian iron-ore miner Ferrexpo Plc said that while its mines continue to operate, its ability to ship out of the country is beginning to be impacted.
Sanctions loom against Russia that could also impact its commodity exports. U.S. President Joe Biden promised to inflict a “severe cost on the Russian economy” that will hamper its ability to do business in foreign currencies.
In the wake of Russia’s moves, oil passed $100 a barrel for the first time since 2014, European gas jumped, and aluminum hit an all-time high.
According to Mori, Nippon Steel is assuming there will be no slowdown to operations due to the conflict, but “it’s inevitable” steel demand will be impacted if the situation worsens to the point it slows the global economy.
As a potential positive for Nippon Steel, a cut in Russian gas supplies to Europe could spur development of liquefied natural gas projects to ensure the bloc’s energy security, leading to higher demand for steel pipes.
Russia is Europe’s top gas supplier, with about a third of flows traveling through Ukrainian pipelines. Some LNG tankers originally destined for Asia have already been redirected to Europe due to better prices in the continent.
“If LNG development projects are advanced for defense in the region, we’ll see more demand for seamless steel pipes,” Mori said.
Record Profits
Nippon Steel is also wary of recent spikes in iron ore and slowing demand from carmakers due to supply chain bottlenecks that accelerated vehicle output cuts. Those factors have been weighing on its earnings, according to Mori. Iron ore pellet is a highly concentrated form that makes up an undisclosed portion of all the company’s iron ore purchases.
The company will stick to its guidance of record annual profits for the fiscal year ending March 31, saying higher overseas revenue supported by rising steel prices can help compensate for the shortfall.
Mori also said price negotiations with domestic manufacturing customers, including carmakers, have nearly been completed and the company is securing another increase for the coming quarter or half-year starting April 1. He didn’t elaborate or give the size of the hike.
That’s a signal steel suppliers have gained an upper hand in a country where automakers, their biggest manufacturing customers, have typically had more bargaining power. Senior executives of the steelmaker have been increasingly vocal in seeking better terms for domestic contract prices to bridge the gap with international prices.