Russian pipemakers seek to limit scrap exports again

Russian steel pipemakers have proposed reinstating a quota system for the country's ferrous scrap exports to outlets outside the Eurasian Economic Union (EEU) for six months, starting from 1 July or 1 August, with the overall quota suggested at no more than 995,000t.

The Russian Foundation for Development of Tube Industry (FRTP), a body that includes the country's largest pipemakers — TMK, OMK and Chelpipe — addressed a letter to the economy minister Maxim Reshetnikov in late May and the suggestion is now being considered by Russia's ministry of economic development.

The regional quota system was enabled for the first time in early September 2019 and caused Russian ferrous scrap exports to hit a 10-year low last year. Exports totalled 4.31mn t in 2019, down by 25.1pc on a year before.

Export flows were redirected to the domestic market in September–December 2019, which allowed Russian steel mills to lower scrap buying prices and consequently reduce production costs, FRTP said. The foundation claimed that such a system will be implemented in the second half of this year amid an expected fall in the country's scrap collection rates.

FRTP expects Russian domestic ferrous scrap collection to decline by around 4mn t this year from 2019 as a result of the Covid-19 outbreak and subsequent lockdowns. Collection fell by 2mn t in April-May. FRTP chairman Igor Malyshev said this shortfall makes any decision to impose export restrictions "explicitly necessary".

"Russian producers may have an opportunity to avoid significantly reducing their output because of order-books available from the domestic market and increasing sales to the overseas market," he said. "If [scrap export] restrictions are not introduced in the second half of the year, domestic steel production will drop by 2.5mn–4mn t on the year."

Russia's industry and trade ministry will not rule out a new temporary ban on ferrous scrap exports in response to falling scrap collection, it said in May.

Market participants surveyed by Argus, including scrap traders and steel producers, cast doubt on direct correlations between mills' scrap inflows and steel output, as well as the relationship between scrap exports and domestic scrap shipments.

"Restrictions of exports last autumn did not help Russian steelmakers obtain higher [scrap] receipts, which continued to decrease from month to month in September–December 2019 because of a lack of motivation among scrap suppliers. Mills' purchase prices were, so to speak, non-inspirational," one trader said.

Rail data show that Russian steelmakers' ferrous scrap receipts decreased during the last four months of 2019 (see table), with the full year total reaching 13.86mn t, down by 3.6pc from 2018. Russian rolled steel products output was more closely linked to demand, including from abroad, than from scrap prices and availability. Russia produced 58.6mn t of crude steel last year, down by 1.5pc from 2018, and 61.5pc of rolled steel product, down by 0.1pc.

"Nobody knows what data FRTP relies on, but it looks like the data have nothing to do with the market reality. Scrap exports unequivocally support the domestic scrap industry and consequently, domestic flows," a steel producer said.

"The sharp fall [in domestic flows] in September last year was a direct result of mills' attempts to drop buying prices without any competition from exporters, which were broadly removed from the market by a quota system," one exporter said. "The fall in mills' autumn scrap receipts have the same roots."

Argus assessments for Russian domestic and dockside scrap prices dropped sharply in September (see graph), but rose again despite the export quota as steelmakers had to raise bids to stimulate flow.

Argus requested the economic rationale behind FRTP's suggestion to restrict ferrous scrap exports, but was officially denied.

By Valery Zavyazkin

Argus average ferrous scrap prices $/t