Dec 08, 2020
Russian pipemakers seek new scrap export duty
2021-01-14
Russian steel pipemakers have lobbied the country's government to increase a duty on ferrous scrap exports in a bid to increase availability and reduce prices for domestic steelmakers.
The Russian Foundation for Development of Tube Industry (FRTP), a body that includes the country's largest pipemakers — TMK, OMK and Chelpipe — last week wrote a letter to Russian economy minister Maxim Reshetnikov calling for Russia's ferrous scrap export duty to rise from its current 5pc, but no lower than $5/t, to 15pc, but no lower than $45/t, starting 1 January.
FRTP claimed that the higher duty would lead to 50pc of the scrap currently exported to be redirected towards the domestic market and help increase utilisation rates of Russian steelmakers' scrap-fed production facilities.
The trade organisation said utilisation rates are currently as low as 58–65pc because of a shortage of scrap that has been intensified by the Covid-19 pandemic's disruption to collection rates.
Ferrous scrap export restrictions imposed by key supplier Kazakhstan in the first half of this year have compounded the availability issue, with January–November shipments down by 15-18pc compared with a year ago.
Despite this smaller volume, FTRP said Russian exports of ferrous scrap remain firm and are expected to reach 3.7mn t in 2020, up from 3.3mn t last year.
The organisation argued that strong export volumes and pricing have hindered Russian steelmakers' ability to build winter stocks. It said an increased duty was necessary to protect Russian scrap availability, "otherwise Russian mills will have to refuse to fulfilling orders for 2mn–3mn t of steel products next year."
The Russian government restricted ferrous scrap exports outside the Eurasian Economic Union (EEU) by implementation of regional quotas in September-December 2019. This caused Russian ferrous scrap exports to hit a 10-year low last year, domestic rail deliveries of scrap to drop by 3.6pc year on year to 13.86mn t in 2019, the number of scrap suppliers to contract by one-third, and Russian scrap prices to steeply fall in the last four months of 2019 (see graph), industrial data show.
Scrap suppliers hit back at export restrictions
Russian scrap market participants contacted by Argus said the call for an increased export duty was based on unsubstantiated claims and is unlikely to be adopted as law.
"This becomes ridiculous: FRTP files petitions seeking to restrict ferrous scrap exports, somewhat semi-annually over the past few years," a market participant said. "And it is always the same — no sufficient rationale at best, but more often just invalid underlying data."
FRTP applied to Russia's government in June to propose the reinstatement a ferrous scrap export quota system. Regulators shelved those restriction plans in September.
"This time, FRTP in its letter provided the government with underestimated indications for scrap collection and shipments in 2020," scrap association Ruslom told Argus. "With 20.2mn t already delivered in January–November, overall shipments should be estimated no less than 25.7mn t, not the submitted (by FRTP) 22.8mn t."
Market participants also said the FRTP's letter exaggerated the extent to which export prices are supporting Russian domestic scrap prices. The 3.7mn t of exports projected by the trade group is only 14.4pc of the total Russian ferrous scrap shipments expected this year, while domestic scrap price gains have lagged export price rises during the current fourth quarter surge.
The average northwest European Russian A3 scrap delivered to dock price reached 20,900 roubles/t last week, boosted by 16.1pc from early October, tracking prices in the export outlets.
In comparison, A3 buying prices of Urals-based steelmakers rose by just 6.4pc over the past two months while prices in central European Russia, where competition with exporters for available flows is most intense, increased by 12.2pc.
"Sometimes, including now, the scrap shortage is out there for objective reasons," a supplier said. "Missing deliveries from Kazakhstan, the out-migration of workforce involved in the industry on the back of the Covid-19 outbreak, quarantine measures — all that caused a drop in scrap collection in the recent months, despite a sharp rise in prices. But no mill has stopped. It doesn't work like that."
Several traders said it was misleading to link under-utilisation of Russian scrap-fed steelmaking facilities with limited availability of scrap. They instead argued that these utilisation rates are more closely linked to weaker domestic and export demand for Russian steel caused by the economic impact of the Covid-19 pandemic.
Russia's domestic steel consumption fell by 7pc year on year in the first three quarters of 2020, the ministry of industry and trade said in November. Ferrous exports from Russia were down by 3.7pc over the period, according to customs data.
By Valery Zavyazkin
Argus ferrous scrap price in Russia Rbs/t
Source: Argus
