By Jack Stubbs
MOSCOW (Reuters) - A plan to resettle almost a million Muscovites in newly-built homes has sparked some of the Russian capital's largest protests in years. But for the country's steelmakers the $50 billion construction project presents a valuable sales opportunity.
Russian steel producers have suffered over the last two years as global steel prices plumbed 11-year lows and a prolonged economic downturn derailed construction and infrastructure projects, which account for 80 percent of domestic demand.
For market leader NLMK (MM:NLMK) and competitors such as Severstal (MM:CHMF), the Moscow government's plan to build 20 million square meters of residential space over the next 15 years is now a chance to win new product sales in a weak market.
Reuters calculations, based on estimated requirements of around 85 kilograms of steel per square meter of residential space provided by producers, analysts and traders, indicate the scheme will require between 1.5-2 million tonnes of crude steel.
Russian steel demand totaled 40 million tonnes in 2016 and is seen increasing by up to 3.5 percent this year after three years of decline. Whilst comparatively small, the additional volumes in Moscow will provide an important boost to the recovering market, traders said.
"Of course, the demand will help the market. But mostly in the long term," said one trader who declined to be named because they were not authorized to speak to the media. "In general figures, the Moscow renovation will return demand to pre-crisis levels."
The Moscow city government has said it plans to spend around 3 trillion rubles ($53 billion) on the resettlement program, which is intended to move people from aging Soviet-era buildings into modern apartments.
But thousands of Muscovites have protested against the plans, with some living in buildings scheduled for demolition saying they do not want to move unless they have guarantees about where they will be resettled.
Moscow city government said it could not comment on the project's steel requirements or the prospects of individual companies as final plans were not yet confirmed and contracts would be awarded via a competitive tender process.
BARS AND BEAMS
Kirill Chuyko, head of metals and mining research at BCS Investment Bank, said the new homes would create demand for so-called "long steel products", the reinforcing bars (rebar) and beams predominately used in building construction.
"The best-positioned companies to take these orders, that's going to be NLMK and Severstal for sure." he said. "NLMK is closest to Moscow and Severstal is also not that far away."
Competitor MMK (MM:MAGN) also produces large amounts of long products but its plant site is in Magnitogorsk, an ex-Soviet industrial center 1,400 kilometers (870 miles) east of Moscow, means it will struggle to meet the orders, Chuyko said.
In contrast, NLMK operates a mill specializing in steel products for the construction industry in the city of Kaluga, just 150 km (93 miles) south-west of the Russian capital.
"To take part in all this, you need warehouses and logistics, which only NLMK has in Moscow," the trader said.
A company spokeswoman said the NLMK's plant in Kaluga was the leading producer of rebar in the area and could reroute supplies currently going to other regions if demand in Moscow increased on the back of the government's construction plans.
Severstal said its mills in Cherepovets and Balakovo, 390 km (242 miles) and 760 km (472 miles) from Moscow respectively, and its wide range of products would allow it to compete for the volumes.
"Severstal has the strongest positions to become one of the major suppliers for the residential homes renovation program in Moscow," the company told Reuters.