Russia may triple ferrous scrap export duty

Russia's ministry of economic development has drawn up a draft bill to treble the country's duty on ferrous scrap exports and sent the legislation to the government for approval on 18 December.

Following a request by the Russian Foundation for Development of Tube Industry (FRTP), a body that includes the country's largest steel pipemakers, the ministry moved to set the ferrous scrap export duty, which is currently at 5pc but not less than €15/t ($18.25/t), at 5pc but not less than €45/t ($54.75/t) for a six-month period, starting 30 days from the date of the government's approval.

In its explanatory note to the draft bill, the ministry cited data provided by the FRTP and repeated the pipemakers' key arguments for the hike of the duty, including that it might help "reduce the deficit of ferrous scrap in the domestic market by redirecting about 50pc of now-exported material to Russian electric arc furnace-based steelmakers".

The proposal to keep the 5pc level of the duty unchanged but lift the value threshold to which the duty applies is clearly intended to reflect the surge in global ferrous scrap prices since early October.

For example, the Argus daily fob Russia/Ukraine Black Sea assessment for short-sea A3 cargoes on 18 December was $421.60/t, which means that under the current €15/t threshold, any cargo sold at this level would be paying less than a 5pc duty on the sale. In this context, the higher €45/t threshold allows the 5pc duty to be maintained while the market remains at current levels or higher.

But market participants surveyed by Argus argued that the economy ministry's decision does not take into account that prices of other steel feedstocks and semi-finished and finished steel products have also risen sharply in recent months.

"They compare scrap prices in the past two months with those from the beginning of the year, forgetting to do the same for steel products prices," one scrap trading firm said.

According to Argus assessments, Russian northwestern scrap export prices from 1–20 December rose by 22pc from November, 31pc from October and 27.9pc from January, tracking the respective rises in the Argus average daily assessment for HMS 1/2 80:20 cfr Turkey.

Rises in Russian domestic scrap prices over the periods were less pronounced than in exporters' purchasing prices, but steel export prices increases were sharper still (see table).

Domestic rebar price spot indications today reached a range of Rbs62,490–66,990/t ($850.42-911.66/t) cpt Moscow for A500C-grade material, up by 47.2pc from the beginning of December. The jump from late October was about 61pc.

As a result, Russia's deputy minister of industry and trade, Victor Yevtukhov, reportedly urged steelmakers that were lobbying to boost the ferrous scrap export duty to tame increases in domestic rebar prices during their meeting on 18 December. Market participants familiar with the outcome of the meeting said the deputy minister threatened mills with the introduction of steel billet export restrictions if the rise in domestic prices sustains.

In turn, scrap trading firms do not rule out that import taxes on Russian steel products may be imposed by some countries in response to the rise in the country's ferrous scrap duty.

"They suggest to keep the percentage size of the duty unchanged at 5pc in order to divert the attention of the World Trade Organisation. But in terms of value, there's no way somebody won't notice the threefold increase," scrap association Ruslom said.

October exports of Russian ferrous scrap reached about 500,000t, up by 33pc on the month and 58pc higher on the year, the country's customs data show. The sharper year-on-year rise was pegged by regional quotas for scrap exports in September-December 2019.

Russian exports of ferrous scrap to Turkey reached 216,600t in October, 6.5pc higher on the month and 2.1 times more than in the same month of 2019, accounting for about 54pc of Russia's scrap exports that month. Shipments to Belarus — the second-largest buyer of Russian scrap — ramped up by 20.2pc on September to 107,000t, up by 2.9pc on the year. South Korea received 79,600t, which was up by 148pc on the month and 7pc higher on the year.

In January-October this year, Russian ferrous scrap exports totalled about 3.9mn t, an increase of 6.3pc from the same period last year. In comparison, January–October domestic deliveries by rail to Russian steelmakers reached 10.75mn t, 11.2pc below the 10-month total of last year.

By Valery Zavyazkin

Argus steel and ferrous scrap prices $/t