CIS scrap exports remain under pressure of restrictions

Eurasian Economic Union (EAEU) member countries, including Russia and Kazakhstan, may maintain policies in the near to medium term to limit scrap exports that have been imposed to protect domestic markets, the EAEU's intergovernmental council said in the wake of its 5 February meeting.

The council concluded that there is no actual shortage of scrap within the EAEU but that the difference between scrap prices in EAEU member countries and those outside of the union makes protective measures "discouraging the outflows of scrap" possible and allowable.

Kazakhstan

The EAEU council meeting followed debates on the tacit restrictions that Kazakhstan imposed last year on ferrous scrap exports to Russia.

Although tensions between the two countries eased slightly by the end of last year, with rail deliveries to Russia having partially resumed, Kazakhstan continued to consider a potential extension of its ban on scrap exports by truck, despite the Eurasian Economic Commission's (EEC's) October instructions to lift it.

At the meeting on 5 February, Kazakhstan eventually vetoed the decision of the EEC — which is the EAEU's regulator — to recognise the truck-delivered export ban as an economic impediment that contradicts the EAEU's regulations.

"Kazakhstan has indeed established a restriction on the use of trucks when exporting scrap. This measure is part of a comprehensive struggle against the shadow flows of ferrous scrap, which entail the country's budget losses of more than 3.5bn tenge/yr ($8.4 mn/yr). It does not contradict the EAEU agreement at all," Kazakh officials said.

A more significant issue with Kazakh shipments to Russia than the truck export ban is the limitation of export-bound rail deliveries through indirect measures, market participants said.

Kazakh state-owned railway operator Kazakhstan Temir Zholy (KTZ) in mid-December introduced a prohibition on the acceptance of empty railcars from the CIS, the Baltic countries and Georgia. This had the knock-on effect of limiting the availability of railcars to carry Kazakh scrap destined for exports to all destinations, including Russia.

"Following this prohibition, Kazakhstan's Ministry of Industry and Infrastructure Development issued a permission for the transportation of only one export parcel of just about 13,000t of scrap to Russia in January, while none was leased this month yet," Russian scrap association Ruslom told Argus this week.

Ferrous scrap exports from Kazakhstan to Russia were estimated at about 400,000t last year, almost half of the 780,000t registered in 2019.

One of the potential outcomes of the EAEU intergovernmental council's meeting on 5 February could be the implementation of a quota for Kazakh scrap exports to Russia, to be set at a significantly higher level than the 400,000t exported last year, some market participants said.

Russia

Kazakhstan's measures in the past year increased Russian ferrous scrap consumers' fear of a shortage of available material in the domestic market.

This influenced lobbyists to successfully push for a higher duty on Russian scrap exports from 29 January, after which time they boosted calls for a full-scale ban.

Supporters of restrictions on Russian exports argued that the redirection of supply back to the domestic market might fill the gap in scrap shipments from Kazakhstan.

A full scrap ban on Russian scrap exports, which totalled 4.4mn t from January-November last year, was too excessive a measure to replace the lost Kazakh supply and could fail in its other objective of reducing Russian domestic scrap prices, Market participants told Argus this week.

"Steel producers, which are advocating for the full ban, actually seek to lower domestic scrap purchase prices, seeming to not completely understand that it was thanks to higher prices that their inflows significantly improved in November–December 2020 and continued to be firm in January. As soon as prices fall, supply will immediately wither," a scrap supplier said.

Indeed, Russian mills' rail-delivered ferrous scrap receipts totalled 816,000t in January, down by 33.3pc from December but up by 37.6pc compared with the corresponding month of last year, marking a 10-year high for January, rail data show, with the improvement fully attributed to higher domestic prices in the past three months (see graph).

Ukraine

Steelmakers in Ukraine, which is not a member of the EAEU, have also recently expressed support for the extension of the €58/t ($70.33/t) ferrous scrap export duty after its current validity ends in September.

"The export scrap duty has brought huge income to the state budget as revenues from scrap recycled into steel at Ukrainian mills were 8.5 times higher than revenues from scrap exports. The duty is to expire this September, so we appeal to the authorities to keep it further on," state-controlled metals and mining association Ukrmetallurgprom said.

Ukraine's ferrous scrap exports remained minimal last year, although shipments in the final months of 2020 were boosted by the surge in global scrap prices, which made exports relatively attractive even with the tariff added.

The trend continued last month, with exports reaching 19,200t against 2,870t in January 2020, data from industry association UAVtormet show. Some market participants expect exports to stay relatively firm in February too, because export prices softened less quickly than domestic prices in the late January–early February period (see graph).

By Valery Zavyazkin

Argus Russian ferrous scrap prices Rbs/t

Ukraine’s average ferrous scrap prices Hrn/t delivered