Rouble Resurgence Ravages Russia’s Rusting Revenue Reservoirs

Russia’s steel sector, a historic pillar of its heavy industry and a vital export earner accounting for nearly 10% of the nation’s export revenues, faces an unprecedented economic squeeze. At the St. Petersburg International Economic Forum on Thursday, Severstal CEO Alexander Shevelev issued a stark admonition about the industry’s deteriorating health: “The industry today is practically unable to export metal products, because it is economically unviable.” Shevelev pointed directly to the rapid appreciation of the ruble, which has surged to around 89 rubles per $, dramatically eroding the competitiveness of Russian steel on the global market. He explained that an exchange rate closer to 90-100 rubles per $ combined with lower interest rates is essential to restore export viability and rejuvenate demand.

Domestic Demand Decline Dramatizes Dismal Prospects

The domestic market is equally bleak. Shevelev disclosed that steel consumption within Russia could plummet from 43–45 million metric tons in previous years to an estimated 39 million metric tons in 2025, marking a severe contraction. “That’s effectively the disappearance of an entire industry’s worth of demand,” Shevelev said, highlighting how sectors that traditionally absorb large volumes of steel, such as construction, automotive, and heavy machinery manufacturing, are experiencing sharp slowdowns. The reduced domestic appetite compounds the export woes, leaving producers with mounting inventories and shrinking revenue streams.

Export Erosion & Economic Encumbrances Escalate Steel Sector Struggles

According to the World Steel Association, Russia’s total steel output shrank by 8.6% in 2024, the steepest decline among major global producers, and the trend has continued with a further 7.2% drop in the first four months of 2025. Export volumes have suffered a similarly sharp decline, falling by more than a third from 32 million metric tons in 2021 to just 20 million metric tons last year. Analysts at investment firm BCS observed a troubling trend in pricing: Russian steel export prices have dropped 5% in dollar terms and a staggering 26% in ruble terms since January alone. This dual pressure of volume and price decline is squeezing profit margins dangerously thin.

Financial Fragility & Forewarnings of Factory Failures

The fiscal fallout is evident in the financial results of Russia’s largest steelmakers. Novolipetsk Steel reported a loss of 0.3 billion rubles ($3.9 million) for 2024. Magnitogorsk Iron and Steel Works, Russia’s largest steel producer, posted a 1.2 billion ruble ($15.6 million) loss in the first quarter of 2025 alone. Even Severstal, the industry leader, while profitable on paper with 11.9 billion rubles ($154.7 million) in earnings from January to March 2025, revealed a negative cash flow of 33 billion rubles ($429 million), signaling liquidity stress. Shevelev expressed grave concerns: “Unless these economic conditions change, we may see production halts at some plants, especially those with high production costs.”

Government Grapples with Taxation & Regulatory Relief Remedies

In response to mounting industry distress, the Russian government is contemplating measures to alleviate the burden on steelmakers. Industry and Trade Minister Anton Alikhanov confirmed this week that Moscow is reviewing adjustments to the excise tax formula on liquid steel, a move expected to reduce fiscal pressure. He acknowledged the severity of the currency challenge, stating, “The current exchange rate has unfortunately become prohibitive for exporters.” Alikhanov emphasized that optimizing the tax regime and reducing regulatory costs are critical to preserving the metallurgical sector’s viability. These interventions are part of a broader government effort to stabilize one of Russia’s strategic industrial sectors amid economic headwinds.

Monetary Malaise & Market Mechanics Magnify Macro Challenges

The macroeconomic environment compounds the steel sector’s challenges. The Bank of Russia’s current policy, which has pushed key interest rates to a punitive 16%, increases the cost of borrowing for steel companies, many of which require substantial capital for maintenance and upgrades. Industry leaders argue that a recalibration of monetary policy, namely, reducing rates and moderating the ruble’s appreciation, would be instrumental in boosting export competitiveness and domestic investment. Shevelev remarked, “Only with a favorable exchange rate and reasonable financing costs can we hope to revive both production and demand.”

Structural Stagnation & Strategic Shifts Signal Industry Crossroads

Despite the immediate financial and operational difficulties, experts highlight the resilience historically exhibited by Russia’s steel industry, which has endured sanctions, market fluctuations, and geopolitical shocks before. However, the current simultaneous pressures of export price declines, domestic demand shrinkage, and monetary tightening demand urgent structural reforms. Analysts advocate for increased state investment in infrastructure projects to spur steel demand, streamlined regulatory frameworks to reduce administrative burdens, and targeted support mechanisms such as export credit insurance to mitigate international market risks.

Industrial Imperatives Intensify Urgency of Intervention

With over 600,000 direct jobs dependent on the steel sector and the industry accounting for roughly 10% of Russia’s export revenues, the stakes are high. The government’s forthcoming policy decisions, on exchange rate management, fiscal relief, and industrial modernization, will be decisive in determining whether Russia’s steel industry can withstand its current storm or faces a protracted decline. As Shevelev concluded, “The steel industry is at a critical juncture; without swift and targeted support, the consequences will reverberate through the entire economy.”

Key Takeaways:

• Russia’s steel sector may lose sales of up to 6 million metric tons in 2025 due to a slump in domestic demand and export unviability caused by the strong ruble and high interest rates.

• Major producers like NLMK and MMK reported multimillion-dollar losses in 2024 and early 2025, while Severstal faces significant negative cash flow despite profit on paper.

• The Russian government is considering fiscal reforms, including excise tax changes and regulatory cost reductions, while industry leaders emphasize the need for exchange rate stabilization and lower borrowing costs to revive the sector.