It is not a secret for anybody that the russian invasion to Ukraine was financed and continue to be financed, first of all, by the industrial complex of the aggressor country. And the Russian «iron ore and steel» sector is one of the economic pillars of Russia (ranking in the top three after oil and gas), contributing 5% of Russia’s GDP (equivalent to €90 billion in total contribution in 2023). Thanking to the metallurgical sector, the aggressor’s budget received €21 billion in direct and indirect taxes in 2023, enabling Russia to finance one-third of its «war expenses.»

Understanding the role of the russian steelmaking complex in supporting of the aggression in Ukraine, the European Commission had implemented a number of sanctions against the russian steel sector. Unfortunately, the current sanctions against Russian metallurgy are clearly insufficient, allowing Russia to profit significantly in the EU market. According to Eurostat, in 2023 Russia exported €2.9 billion worth of metallurgical products to the EU, and €2.6 billion in 2024. These revenues bolster Russia’s state budget, funding military aggression against Ukraine, supporting Gazprom (as soon as metallurgy is highly energy-intensive), and financing destabilizing activities in the EU.

Moreover, Russian metallurgical products in the EU market harm European integrated steel producers. Russia benefits from significantly lower production costs, including domestic gas prices below €60 per cubic meter, cheap electricity and diesel, no carbon costs and controlled currency devaluation. This enables aggressive price dumping. The average import price from Russia stood at €510/t in 2024, dropping to as low as €456/t by December, whereas EU integrated producers’ cost are estimated at €540–€550/t. In 2024, Russian slabs were priced €87 lower per ton than those from other suppliers, according to Eurostat. This price disparity depresses market prices, reduces revenue for EU steelmakers, and negatively affects production, tax contributions, and employment across Europe.

The above is confirmed by the position of the largest industry association EUROFER (see Annex 1): “The non-enforcement of steel sanctions against Russian semis fuels unfair competition and an uneven playing field within the EU internal steel market. The business model of European rerollers relies on opportunistic cost advantages gained via cheap imports from third countries, in contrast to the European integrated steel industry, whose full production cycle is ‘made in Europe’, maximising industrial, economic, environmental and social value creation in the EU”.

At the same time, there are supporters of these sanction exemptions among the European metallurgical society because of their tight bonds with russia – first of all, some enterprises in Belgium, Italy and Czech Republic. And the main beneficiary of russian metallurgical exports to the EU is the NLMK Group (based on the Novolipetsk Metallurgical Plant), that possesses own rerolling factories in Belgium and Italy. Unfortunately, up to now this Group is the only legal entity of the russian steelmaking sector that avoided the personal sanctions from the European Commission. One of the reasons that allowed NLMK to avoid sanctions is the absence of testimony of this Group participation in financing of the russian aggression.

But the NLMK Group is a monopolist in russia as a producer of the special electrical steel, that is a critical component for the russian military industry (this is confirmed by the official catalogue of the NLMK Group, that indicates that the share of the NLMK electrical steel production in russia is almost 100%). It is impossible to produce electro-power systems like engines, generators, relays etc. for the combat vehicles and equipment without such kind of a steel.

Translation of the text within the red rectangular on the picture: “In the total volume of the dynamo and transformer steel in russia  the share of NLMK is almost 100%”

That’s why on Summer 2024 Association UKRMETALURGPROM appealed to the Paton Electric Welding Institute of the National Academy of Sciences of Ukraine with a request to make an expert conclusion concerning direct cooperation of the NLMK Group with a russian military-industrial complex.

The Paton specialists had performed a deep investigation and made an expert conclusion that clearly confirms the fact of provision by the NLMK Group the russian military-industrial complex with an electrical steel of their own production.

And we expect that these data will be enough to implement the European sanctions on the NLMK Group as a legal entity that supports the russian aggression against Ukraine.

Translation of the Paton Institute Letter to the Association UKRMETALURGPROM:

Mr Oleksandr KALENKOV President of the Association of Enterprises UKRMETALURGPROM

Expert conclusion on the use of NLMK’s electrical steel in military equipment of the RF

Dear Oleksandr Fedorovych,

In response to your letter of 23.07.2024 No. АК-955 we would like to inform that we have studied the information from the 2024 catalogue of products of electrical steel grades and other additional information, which give an idea of production volumes and types of steel products made by Novolipetsk Steel (NLMK).

Based on the analysis, we can draw the following conclusions:

1. To date, NLMK is effectively Russia’s only producer of electrical steel.
2. The aforementioned steel is utilised in electrical devices, which are part of electrical power systems of military equipment of the RF’s armed forces, energy sector, and instrumentation.
3. Thus, NLMK is a key enterprise supplying the military-industrial complex of the Russian Federation with dynamo and transformer steels of own production.

Enclosure: information about the 2024 NLMK products on 6 pages

Best regards,

Director of the Institute, Academician of the NAS                                                                              Ihor KRIVTSUN