Nippon Steel Corp. is planning to make up for any shortfall by buying more steel-making ingredient from alternative sources in Brazil and Australia, which is a source of its iron-ore supplies from Russia and Ukraine.
The executive vice president of Japan's biggest steelmaker, Takahiro Mori, said in an interview this week that about 14% of the company's iron ore pellet feedstock comes from Russia and Ukraine.
Nippon Steel is in talks with other suppliers, including Brazilian giant Vale SA, to buy more, as tensions in eastern Europe increase, he said. Iron ore pellets are a highly concentrated form that makes up an undisclosed portion of the company's iron ore purchases.
After Russia invaded its smaller neighbor on Thursday, Ukrainian iron-ore miner Ferrexpo PLC said that its ability to ship out of the country is beginning to be impacted by the geopolitical crisis.
Sanctions against Russia are looming that could affect its commodity exports. U.S. President Joe Biden said that the Russian economy would be seriously hampered by the fact that it will not be able to do business in foreign currency.
In the wake of Russia's moves, oil passed $100 a barrel for the first time since 2014, European gas jumped and aluminum hit an all-time high.
According to Mori, Nippon Steel is assuming there will be no slowdown to operations due to the conflict, but it is inevitable that steel demand will be impacted if the situation worsens to the point it slows the global economy.
A cut in Russian gas supplies to Europe could spur the development of liquefied natural gas LNG projects to ensure the bloc's energy security, leading to higher demand for steel pipes, according to a potential positive for Nippon Steel.
Russia is Europe's top gas supplier, with about a third of flows passing through Ukrainian pipelines. Some LNG tankers originally destined for Asia have been redirected to Europe due to better prices on the continent.
Mori said that if LNG development projects are advanced for defense in the region, there will be more demand for seamless steel pipes.
Nippon Steel is wary of recent spikes in iron ore and slowing demand from carmakers due to supply-chain bottlenecks that have accelerated cuts to vehicle output. According to Mori, those factors have been weighing on its earnings.
The company will stick to its guidance of record annual profits for the fiscal year ending March 31, saying higher overseas revenue supported by rising steel prices can help compensate for the shortfall.
Mori said that price negotiations with domestic customers, including carmakers, have almost been completed and that the company is securing another increase for the coming quarter or half-year starting April 1. He didn't elaborate or give the size of the hike.
That signals steel suppliers have gained a greater hand in a country where automakers have traditionally had more bargaining power, according to a country where they are their biggest manufacturing customers.
Senior executives at the steelmaker have been increasingly vocal in seeking better terms for domestic contract prices to bridge the gap with international prices.