Russian steelmakers are stepping up exports to compensate for a fall in a domestic demand, but with European and U.S. protectionism fuelling market competition, analysts say they risk losing sales to Chinese rivals.
Exports have become increasingly lucrative for Russian steel producers such as NLMK, Evraz, Severstal and MMK which posted record earnings for 2014, as a weaker rouble lowered costs in dollar-terms and supported profit margins.
But battling a flood of cheap foreign steel, the European Union and United States have moved to protect domestic producers and as the market becomes more restricted, Russian exporters are being pitted against their Chinese counterparts.
"Russian producers are going to have to start competing with Chinese steel, which is not inferior in quality but cheaper and has a more diverse product mix," said one Russian export trader at a large European company.
U.S. steelmakers petitioned in early May to scrap a trade deal sparing their Russian competitors from import duties. Last week, the EU launched an anti-dumping investigation into allegations that Russia and China have been selling below market cost.
Russia exported 25 million tonnes of steel in 2014, according to industry lobby group Russian Steel. Domestic demand is forecast to fall 11.5 percent this year as Russia's economy heads towards recession, pushing steelmakers to chase buyers overseas.
Chinese exports are expected to hold at 80 to 90 million tonnes this year, said the China Iron and Steel Association.
Russian producers have traditionally been able to compete on price thanks to their vertically integrated operations, but falling coal and iron ore prices have robbed them of this advantage, said Caroline Bain, senior commodities economist at Capital Economics.
"The competitive edge of Russian producers has disappeared," she said. "Their marginal costs are now more comparable with Chinese producers."
The complicated bureaucracy that working with Russian exporters entails is also discouraging customers, the market trader said.
"(The Chinese) have none of these ridiculous rules beloved by Russian producers," he said. "They are winning the market and then you look at what our guys are doing - it's hard to understand."
But some analysts say the weaker rouble, which has recovered 17 percent in 2015 but is still down almost 30 percent year-on-year, will be enough to keep Russian players in the game.
Dmitry Popov, steel analyst at CRU Group, said costs for Russian producers were still much lower than in 2014.
"We don't expect the rouble to appreciate much more than it has already," he said. "The Russians are still able to offer really low prices and compete with China."