Trade

Lugano, steel and war


Dave Mustaine/Keystone

Ticino is an important hub for trade in steel products from Eastern Europe. The conflict in Ukraine and the sanctions against Russia strongly affect the economic center of Lugano.

This content was published on March 30, 2022 – 10:12

Federico Franchini

Manno, in the suburbs of Lugano. An unmarked commercial building houses Severstal Export Gmbh, a company that exports and trades steel products. Its shares are controlled by Severstal, a Russian steel giant owned by Aleksej Mordashov. This oligarch, who became the company’s financial director in 1992 when he was 26, is today at the head of a mining, banking and television empire. In 2021 he was the richest man in Russia according to Forbes.

At the beginning of March, Aleksej Mordashov found himself on the list of people sanctioned by the European Union (EU), because “he takes advantage of his links with the Russian leaders”, is it written in the official justification. In Ticino, Severstal does not comment, but his situation is potentially very difficult. Switzerland has indeed taken over all EU sanctions and the State Secretariat for Economic Affairs (SECO) is now required to block funds and economic resources owned or controlled by persons, companies or entities listed on the blacklist.

The war in Ukraine and the sanctions against Russia have reached the shores of Lake Ceresio and are creating a stir on the discreet Ticino commodity market. Especially for the many players specializing in the trade of steel products with the two countries of Eastern Europe.

“The date of February 24, 2022 will mark our history, even more than September 11, with still unforeseeable consequences. For the many people in Lugano who do steel business with Russia and Ukraine, this means total paralysis,” the director of a company active in the steel trade told SWI swissinfo.ch. steel, which prefers not to be quoted. A similar picture is painted by Marco Passalia, secretary of the Lugano Commodities Trading Association (LCTA), the association representing companies active in commodity trading. He speaks of “stranded ships, blocked lines of credit and companies on the verge of bankruptcy”.

Crisis meeting

Steel is a strategic raw material. In Russia, it is synonymous with power: several of the most important members of the oligarchy control the large steel mills, thanks to which they have amassed colossal fortunes. On March 15, Europe decided to ban the import of Russian steel products. Shortly after, a crisis meeting was organized in Lugano between various players in the sector.

The situation was considered dramatic. “For a few days there was panic and we didn’t know what to do. On the one hand, there were no clear guidelines from the Swiss authorities, and on the other hand, for many people there is always the risk that contracts can no longer be honored. It’s easy to imagine what that means”, says Marco Passalia, secretary of the LCTA and coordinator of the meeting.

Himself director of an energy trading company, Marco Passalia considers that three points are particularly critical. The first concerns the restrictions on bank credits, already partially adopted before the start of the war. “Many banks had already blocked the financing of many Russian raw materials, with the exception of gas and oil, before the conflict”, indicates Marco Passalia. Then there are the sanctions and their verification, which require a lot of work, as well as the logistical problems related to the conflict, he says.

For people who work with Ukraine, the problems are directly related to the war: most of the factories are in the east of the country and are blocked or have converted their production, not to mention the fact that the ports are closed and that nothing more comes out of Mariupol. In addition to the difficulties in finding boats to leave the ports, people who are in contact with Russia must also be wary of the sanctions, since new names are added every week to the list of people sanctioned whose assets are frozen.

Who is punished and who is not

On March 15, Viktor Rashnikov, owner of steel giant MMK – considered by the EU and Switzerland to be a “source of revenue for the government of the Russian Federation” – also joined the European and Swiss blacklist. The news immediately reached Ticino, where the subsidiary MMK Steel Trading has been established since 2002. When contacted, the company declined to make a statement. But the situation appears to be difficult, as the sanctions also provide for the freezing of assets controlled by those blacklisted through companies. This means that MMK’s accounts could have been flagged and blocked by Swiss banks.

Chairman of the Board of Directors of Magnitogorsk Steel (MMK), Viktor Rashnikov. AFP

But the problem is not just about the people targeted by the sanctions. Russia is at home in Lugano. Other companies active in the steel trade – but also coal, nickel or oil – exploiting raw materials of Russian origin and/or linked to Russian shareholders are based there, even if they do not are not controlled by sanctioned persons. The commercial branch of NLMK, a steel giant in the hands of the discreet oligarch Vladimir Lisin, is an example. In Ticino since 2007, NLMK Trading represents more than 30% of Russian steel exports. It is therefore inevitable that all these companies will be affected by the situation and be blocked.

Marco Micciché, CEO of Eusider Trading, a company that sells steel and raw materials for steel production, confirms this: “Even entities that are not directly affected by the sanctions, but have business with Russia, are in great difficulty, because the banks apply a kind of total embargo. We are active in other countries and we no longer touch anything that concerns Russia. The risk in terms of compliance is too high.”

Vladimir Lisin, chairman of the board of directors of Novolipetsk Steel, one of Russia’s largest steel companies, at the 2018 conference of the Russian Union of Industrialists and Entrepreneurs (RSPP). AFP

Marco Micciché explains that the current situation has nevertheless resulted in an increase in demand for steel from companies like his, mainly due to the blockage of supplies from countries at war. “European industry constantly needs new steels and that is also why prices have exploded,” he says.

World Steel Center

Less known than Geneva and Zug, Ticino is Switzerland’s third largest commercial hub. The peculiarity of hub of Lugano is to be specialized in the steel trade. Of the 123 commodity trading companies registered in Ticino, 51 specialize in the trade of minerals and metals.

These companies employ 575 people out of the almost one thousand employees of the Ticino sector as a whole which, according to estimates by the professional association, represents 2% of the canton’s GDP and generates tax revenues of around 70 million francs per year. year. It is therefore clear that the current situation is causing great concern among the protagonists of the sector. “At least 15 companies with close ties to Russia and Ukraine are now seeing their activities paralyzed and very much fear job losses,” Marco Passalia told SWI swissinfo.ch.

The development of the Lugano pole is partly due to the role of Duferco, considered one of the main steel trading companies in the world, active on the banks of the Ceresio since the 1980s. Today Duferco, whose company holding DITH is located in Luxembourg, is controlled by the Chinese giant Hebteel, the third largest steel producer in the world. In 2021, DITH made $255 million in profits, most of which comes from Lugano, from where the company trades around 13.5 million tonnes of steel and ferrous metals annually. This is roughly the equivalent of what a country like France produces annually.

From Donbass to Ticino

A minority share (21.5%) of the capital of DITH is still held by the former owner and founder, the Italian Bruno Bolfo. This leader, who today controls other companies in the Lugano region, was one of the first to venture into the countries of Eastern Europe. In the Roaring Twenties following the collapse of the Soviet Union, Bruno Bolfo did business in Russia and Ukraine, where for years he was the exclusive distributor of products from the Industrial Unions of Donbass, the giant of Donetsk steel.

Since then, the Lugano name has gained prominence in the eyes of Eastern European steel producers. The Russian oligarchy, but also the Ukrainian oligarchy established commercial branches in Ticino. An example of this is the Interpipe of Viktor Pinchuk, one of the richest and most influential men in Ukraine. World leader in the production of railway pipes and wheels, Interpipe controls two companies in Paradiso, a town near Lugano.

Specialized personnel of Ukrainian origin have also settled in Lugano. This is the case of Sergiy Dynchev. After working for several years in Geneva for Metinvest, Ukraine’s largest steel producer, he settled in Ticino and now runs Ivancore, a company specializing in steel trading. “Lugano is a less attractive city from a tax point of view than other Swiss cities, but very popular with people from Eastern Europe, especially because of its climate, its mentality and its proximity to Italy,” he explains.

Sergiy Dynchev points to another problem affecting the sector today: “In addition to having blocked financing linked to Russia, the banks are demanding greater credit coverage, due to the sudden changes in commodity prices. Therefore, many traders have to take on more debt and are therefore looking for funds. In practice, traders risk becoming insolvent in the event of unexpected price changes. After the Russian intervention, a ton of rolled steel rose from 600 to 1,400 dollars, and heavy plates from 650 to almost 2,000 dollars a ton.

But the director of Ivancore has other concerns. “My family is in Mariupol and we are going through very difficult times. Every day, I try to contact them for news. It’s a dramatic situation, ”confides the leader from the city that has become the symbol of this war, the shock wave of which has spread to Lugano.

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