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. Last Updated: 07/27/2016

Ukraine Steel Imports Under Scrutiny

bloombergZaporozhstal, which exports cold-rolled steel to Russia, would be one of several Ukrainian steelmakers hit by a ban.
Russian-Ukrainian relations have soured in yet another field as legislators Friday called for all Ukrainian metals to be stopped from entering the Russian market.

The State Duma's Environment Committee on Thursday urged a moratorium on all Ukrainian metal imports, asking the government to stop what it called scrap metal from Chernobyl being sold in Russia.

The head of the committee, Vladimir Grachev, cited customs data for 2005 and 2006 as evidence that Ukrainian steel was contaminated by radiation, alleging that much of it was smelted from scrap gathered in the Chernobyl area.

The announcement comes as political tensions continue to mar relations between the two countries and Russia and Ukraine squabble over gas prices.

In the spring, Russia banned all imports and sales of Georgian and Moldovan wines, saying they were a danger to public health, in a decision that was widely seen as political.

On Friday, the Federal Customs Service refused however to support legislators' calls for metals imports to be barred, leading experts to suggest that the proposed ban is yet another move by Russian lawmakers inspired by political rather than economic considerations.

"Neither pipes nor metal roll from Ukraine have ever been stopped by Russian customs because of radiation," Vladimir Zubkov, a spokesman for the customs service, said Friday by telephone. "This is some kind of nonsense."

Meanwhile, a Ukrainian government press secretary told Kommersant that Kiev could reply in kind and review the procedure for importing Russian steel.

The allegations came just two days after the Economic Development and Trade Ministry launched an anti-dumping investigation into Ukrainian imports of cold-rolled steel.

The ministry acted on a complaint by three of Russia's top steelmakers, Magnitorgorsk Iron & Steel, Severstal and Novolipetsk Steel, or NLMK.

However, Anton Bazulev, deputy CEO of NLMK, stressed Friday that the investigations into price dumping and radioactivity were completely separate.

Ukrainian metals producers hold under 6 percent of the 65 million ton Russian steel market, and mostly sell pipes, cold-rolled steel and rods.

The rivalry between Ukrainian and Russian steelmakers is "psychological," with the neighboring producers both cash-rich and still in the process of carving up the market since the breakup of the Soviet Union, said Olga Okuneva, a Deutsche UFG analyst.

"These trade wars are frequent," Okuneva said, noting that the Economic Development and Trade Ministry initiated four anti-dumping investigations into various Ukrainian metal products last year.

"Our producers are fighting for their place under the sun," she said.

Adriy Gostik, a metals analyst with Concorde brokerage in Kiev, disagreed. Both the radiation and the anti-dumping claims were politically motivated, he said.

Sanctions against Ukrainian cold roll producers would affect only two steelmakers, Zaporozhstal and the Ilyich Mariupol Iron and Steel Works, Gostik said. "They can just as easily divert sales to Asia and the Middle East," he said.

The Russian market is worth about $650 million for the Ukrainians, Kommersant said, citing official figures. Russian steelmakers, with 17.5 percent of the Ukrainian market, stand to lose nearly $1 billion should Kiev bar them in turn, the paper said.

But Ukrainian manufacturers would still be hit harder by a mutual ban than their Russian peers, said Roland Nash, a chief strategist with Moscow-based Renaissance Capital. "It doesn't help if one of your biggest export markets is closed," he said.

Knowing Ukraine's vulnerability in this area, the Kremlin can use metals as another economic lever in a political spat between the neighbors, Nash said.