Since last update the EU has announced a new sanctions package which includes the following:
- Import ban on Russian steel segment
- Ban on new investments in Russian energy projects
- A prohibition of transactions with certain Russian State-owned enterprises
- EU is to revoke Russia’s “most-favored nation” trade status at the WTO, meaning potential higher tariffs on Russian goods. Earlier the same sanction action was applied by the US.
- Ban on luxury goods export to Russia
- Individual sanctions against some Russian businessmen and the associated people with them.
- A ban on the rating of Russia and Russian companies by EU credit rating agencies
We think there is no material economic damage for the Russian economy from these sanctions. The list of goods affected by the steel imports ban does not include semi-finished steel products and non-ferrous metals:
- Overall semi-finished steel products amounted to 56% or Russia’s steel exports in 2019.
- Russian aluminum, titanium, copper, nickel, palladium and iron ore are exempt from the restrictions, according to Bloomberg.
The steel imports ban could sound most concerning to Severstal and NLMK, whose share of exports to the EU was about 34% and 18%, respectively. However, Severstal has already been unable to import steel to the EU because of the earlier sanctions against its owner, A. Mordashov. The company has already been searching for other buyers, most likely in Asia and Middle East. As for NLMK, company mostly exports semi-finished steel products (slabs and billet) not affected by sanctions. Company’s exports to the EU now go through Turkey and the volumes continue being realized with no disruptions.
As for the ban on transactions with certain Russian state-owned enterprises, it will concern several companies, where government ownership is more than 50%. Among the affected companies whose securities are traded on the Moscow Exchange are Rosneft, Transneft and Gazprom Neft. The ban will not concern transactions needed for purchases, imports and transportation of the fossil fuels (including coal, oil and gas) from Russia to the EU. Additionally, the ban will not apply to active contracts that were issued before 16th of March 2022.
The ban on investment in the energy sector will concern investments in exploration and production of energy resources with the exceptions for civil nuclear energy. Russian oil and gas companies have lived under sanctions since 2014 and thus have adapted the exploration and production segment to survive without foreign technologies, thus we do not expect significant effect from these sanction measures either.
Authors: Gennady Sukhanov, Deputy Head of Equities & Head of Research; Egor Kiselev, Head of International Business & Investment Marketing; Aleksandra Kuznetsova, Investment Specialist