Russia plans to temporarily triple export tariffs on stainless steel scrap

The Russian government plans to nearly triple export tariffs on scrap steel, aiming to increase the supply of scrap in the domestic market and curb price increases for steel products. However, the increase in tariffs will not affect the number of quotas exported under the current tariffs

The State Customs Committee of the Government of the Russian Federation has approved an increase in the minimum export duty on scrap steel outside the Eurasian Economic Union from EUR 100/t to EUR 290/t ($324/t). The tax rate remains at 5%. The Russian Business Consulting News Agency (RBC) quoted industry sources as saying that the increase in export tariffs will not affect the quarterly quota of 810,000-830,000 tons, and the quantity within this quota will still be exported according to the current tariff of 100 euros / ton, and will be exported according to Special proportions are distributed among regions. Russian scrap exports in 2021 are 4.2 million tonnes.

The new restrictions must be approved by the government to take effect. The new tariffs are scheduled to be implemented for three months from May 1. The main purpose of raising tariffs is to maintain the supply capacity of raw materials in the domestic market in the case of soaring scrap prices in the global market, so as to restrain domestic raw material prices from rising, thereby preventing steel product prices from rising.

The new tariff hikes run counter to a proposal by the Russian Scrap Association (Ruslom) to liberalize scrap exports in the face of reduced scrap demand from Russian mills.

In fact, tariffs of €100/t from 1 January 2022 have already hindered scrap exports from Russia. According to Ruslom, Russia exported 40,000 tonnes of scrap in January-February this year, down 94% from more than 710,000 tonnes in the same period last year.

Ruslom believes the move to set quotas is a buffer compared to a blanket ban on scrap exports. Because if there is no quota and there is not enough room for exports, a nearly three-fold increase in basic tariffs means a complete ban on scrap exports.

Ruslom said the domestic scrap market in Russia has declined and there is simply no incentive to push the market to collect all the scrap that can be collected. In January-February this year, scrap collection in Russia was around 2.9mt, down 30% year-on-year, due to pressure from the increase in export tariffs since January and a drop in domestic scrap demand.

However, this pressure seems likely to ease. Scrap prices rose sharply in the first two months of the year. According to S&P Global data, Turkey imported high-quality heavy melting scrap at $654/t (CFR) on March 29, up $190/t from $463/t on December 29, 2021. The $190/t price hike largely offsets the current tariffs, and with current price trends, scrap exporters will become increasingly motivated to export if the €100/t tariff is maintained.

Ruslom said the quarterly quota of 800,000 tonnes corresponds to Russia's quarterly sales in 2021 outside the Eurasian Economic Union, so the move to retain the quarterly quota for exports at current tariffs could bring scrap exports back to last year's levels. This also means that even if domestic scrap demand in Russia falls from 13.3 million tons in 2021 to the expected 9-11 million tons in 2022, a certain amount of domestic scrap collection can still be maintained.

Russia's steel demand in 2022 is likely to fall by 30% year-on-year, or 13 million tons, the Russian Steel Producers Association (RusskayaStal) said in a recent report to the government. The association said that Russian steel producers are facing the challenge of a sharp drop in domestic steel demand, mainly due to production disruptions in the domestic auto industry, currently 8 out of 14 Russian auto plants have stopped production, and the decline in Russian auto production is expected to reach 50% this year. %. Moreover, other factors will also weigh on domestic steel demand.

In addition, the association's report to the government also mentioned that it is not in favor of raising rail freight rates in the coming months. It is reported that Russian Railways is considering increasing rail freight by 11.7%, 18% and 20% in the second, third and fourth quarters, respectively.