Will the Ukraine-Russia war impact the M&E supply chain?

In light of the recent tragic events in Ukraine, I would like to first take a moment to acknowledge the countless lives that have been lost and affected.

The Ukrainian people are facing an extreme situation and have shown nothing but resilience and vigour, and deserve all support they can get.  

We have seen first-hand the kind of awe-inspiring determination they’ve had to take on through one of the service providers that we work with who are normally based in Kharkiv; where the invasion started on the 24^th of February last month. Despite the severity of the situation, within 2 days most of the entire team of 15+ people were sent to an area in Ukraine with much less disruption, and were able to keep working on the projects with zero impact or downtime, operating out of hotel rooms with multiple backup internet connections due to the instability.  

The fact that at a time like this they are able to, not only weather the storm and adjust, but keep progressing and working in order to fend for themselves as well as their relatives and fellow Ukrainians is truly quite something. Chances are, you never think something like this would happen to you until it does, and you never think you could handle it until you’ve got no choice but to. Our hearts go out to the strong, brave people of Ukraine during this difficult time.  

Being careful not to undermine the gravity of the situation, it’s worth noting that the war has had knock-on effects; for example, coal prices have surged. It’s also predicted to have an impact on the M&E sector, most notably the inflation of steel price, which we’ll discuss further throughout this article. 

Russia and Ukraine are the world’s 5^th and 12^th largest steelmakers, respectively, accounting for roughly 10% of the global steel trade alone (Mint, 2022). As a result, it’s no surprise that there will be increased cost pressures on steel mills, and subsequently the price of steel worldwide will rise.  

This isn’t the first time this has happened in recent years. As I’m sure you know, COVID-19 has had a severe impact not only on the construction industry, but every industry, and a big part of that was pricing.  Steel prices had already been doubled since the beginning of COVID, and continued to surge until August/September 2021 when the climb finally began to plateau, and then gradually decrease. We haven’t seen this in practice, though, because finished products typically lag the market by 3-4 months. 

Unsurprisingly, there was some hope that price increases had run out of steam and would begin to level out– so people in the industry were reluctant to buy steel in advance or in bulk. Now, there is no longer as much availability of steel in the marketplace, which happened at the worst time possible. 

The EU is prohibiting the import of iron and steel sector goods as part of the numerous sanctions being imposed on Russia – others bans include the export of luxury goods, dual-use goods, transport sanctions, and many more. Moreover, European mills are shutting down production due to the rise in energy prices. 

On a statement issued on the 11^th of March, the European Commission President Ursula von der Leyen said: “This will hit a central sector of Russia’s system, deprive it of billions of export revenues and ensure that our citizens are not subsidizing Putin’s war,” (Al Mayadeen, 2022). 

Considering that Russia is one of the biggest steel exporters in the world and was a principal supplier for many, it’s understandable to be frustrated. Prices will go up and it will be difficult – the best we can do is to continue to monitor and report on the situation to stay informed. 

But, at the risk of sounding blunt, there are far worse things to worry about than the prices of things - look at the bigger picture. Innocent people are dying. Meanwhile, here I am writing about how the construction industry will have to spend more on steel – and while it is painful and exasperating, money comes and goes. The same can’t be said about the lives that were lost. This shouldn’t be diminished just because it’s not happening to you. 

At the end of the day, what’s happening is a terrible act of injustice with far-reaching consequences beyond just those directly involved. Whilst things in the marketplace are looking quite uncertain and volatile at the minute, it’s definitely not the worst part relative to the devastation – in fact, it’s for a very good reason. Think of it this way: maybe the inflation is the cost of defending freedom; our opportunity to ‘do our bit’. It’s the least we can do, really. 

References:

• Al Mayadeen, 2022. EU to adopt new package of EU sanctions against Russia. [online] Al Mayadeen English. Available at: https://english.almayadeen.net/news/economics/eu-to-adopt-new-package-of-eu-sanctions-against-russia
• Mint, 2022. Russia-Ukraine crisis to raise input cost, boost exports for Indian steel firms. [online] Available at: https://www.livemint.com/companies/news/russiaukraine-crisis-to-raise-input-cost-boost-exports-for-indian-steel-firms-11646632538575.html
• Spence, E., 2022. EU Steel Prices Surge on Hit to Supply From Ukraine and Russia. [online] BloombergQuint. Available at: https://www.bloombergquint.com/markets/eu-steel-prices-surge-on-hit-to-supply-from-ukraine-and-russia