Deputy Prime Minister Yuri Borisov did not support the introduction of quotas for the export of ferrous scrap. Kommersant was informed of this by two sources in the industry, familiar with the text of the Deputy Prime Minister’s order, given in September. By means of this order, Yuri Borisov instructs the Ministry of Industry and Trade and other relevant ministries to work out possible mechanisms for regulating the scrap market ‘in order to supply consumers with strategic raw materials unconditionally’ and report to the Government by October 1, 2020. The representative of Mr. Borisov left Kommersant’s inquires without response.

The introduction of quotas was initiated by the Foundation for Development of Tube Industry (FRTP), which represents the interests of the largest pipe companies. The Foundation proposed to limit exports to countries outside the EAEU with a quota of 1 million tons for six months. Otherwise, the Foundation forecasts a decrease in steel production in Russia by 2.5–4 million tons. Among the market participants, quotas are supported by Severstal, the Abinsk Electric Steel Works and Magnitogorsk Iron&Steel Works (MMK). A representative of MMK confirmed to Kommersant that the company supports the introduction of quotas for the export of scrap metal due to the current shortage in the domestic market.

A Kommersant’s source in the market estimated the shortage of scrap in September at 400 thousand tonnes.

Igor Malyshev, the director of the FRTP, told Kommersant that scrap prices on the domestic market have been growing for the last five months and have already reached their maximum historical level, which was two years ago. ‘For example, in the Ural region, now, at the beginning of September, a historic record of scrap prices has already been reached. The reason is the limited supply of scrap after the pandemic and the ban on its import from Kazakhstan. The overwhelming majority of metallurgical plants confirmed the deterioration in the provision of scrap and the need for export restrictions at summer meetings in the Ministry of Industry and Trade’ he says. Mr. Malyshev recalls that only Russia out of the five EAEU countries has no significant restrictions on the export of scrap. Igor Malyshev also stressed that, based on the wording of Yuri Borisov’s instructions, an additional analysis of the situation will be carried out.

The quotas were opposed not only by scrap collectors themselves, but also by the Ministry of Economic Development and the Federal Customs Service. The Ministry of Economic Development saw the introduction of quotas as a violation of Russia’s obligations to the WTO.

The Customs Service believed that quotas would not achieve their goals, since raw materials would be exported through the EAEU countries. In addition, Russian ports opposed the quotas, fearing a reduction in export trans-shipment.

Commenting on Yuri Borisov’s order on the need for stable scrap supplies, Viktor Kovshevny, the director of the Association of Metal Scrap Processors RUSLOM.COM, notes the need to stimulate scrap collection, for example, through equipment recycling programmes. He also added that the abolition of individuals’ personal income tax on sale of recyclable materials would also help the situation, making people unafraid to deliver scrap.

According to Maxim Khudalov from ACRA, the situation with scrap collection is improving. Thus, shipments to plants in August 2020 were actually equal to amounts of August 2019. According to the expert, the plants possess approximately a two-month supply of scrap in their warehouses, which is not unusual on the eve of winter. ‘Domestic scrap prices are growing, but they reflect the dynamics of export prices and the depreciation of rouble’, says Maxim Khudalov. In his opinion, it is premature to talk about a deficit of scrap, since the demand for its processed products, in particular rolled metal, remains rather weak.

By Kommersant Newspaper

https://www.kommersant.ru/doc/4483859

09.09.2020

Evgeniy Zaynullin, Kommersant Newspaper

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https://www.kommersant.ru/doc/4457574

17.08.2020

As Kommersant found out, the Government failed to come to an agreement on the introduction of quotas for the export of scrap metal, which are promoted by the Foundation for Development of Tube Industry (FRTP) and some metallurgists. Thus, the Ministry of the Economy sees the introduction of quotas as a violation of Russia’s obligations to the WTO. The Customs Service believes that quotas will not meet their goals, since raw materials will be exported through the EAEU (Eurasian Economic Union) countries, although the FRTP believes that such re-export will be unprofitable. Meanwhile, the need for quotas looks more and more questionable against the forecasted decrease in metal consumption.

The ministries are not ready to unequivocally support quotas for the export of scrap, as follows from the correspondence with which Kommersant got acquainted. The initiator of the quotas is the FRTP, which represents the interests of the largest pipe-producing companies. The foundation proposes to introduce quotas on exports to non-EAEU countries for six months with a quota volume of 1 million tons. Otherwise, the foundation predicts a decrease in steel production in Russia by 2.5–4 million tons.

From the letter of the Ministry of Finance to the Ministry of Industry and Trade in June, it follows that the Ministry ‘considers it possible’ to support the foundation’s proposal, but expects additional information from it, including the information on administrative mechanisms that would eliminate the risks of exporting scrap to third countries through the territory of the Eurasian Economic Union. The Federal Customs Service (FCS), in turn, referring to the law enforcement practice of the customs, notes that such unilateral measures lead to the ‘relocating of flows’ of goods through the EAEU countries, which ‘prevents achieving the stated goals’.

The Ministry of Finance informed Kommersant that its position on the issue of quotas is being worked out; the FCS did not provide any comments.

The head of the FRTP, Igor Malyshev, noted that scrap of ferrous metals is an inexpensive commodity, so its export through other EAEU countries is unprofitable due to high cost of logistics.

Moreover, all the EAEU member states have various restrictions on the export of scrap, including not only in relation to third countries, but also the countries of the Union.

According to Kommersant’s information, among the market participants, quotas are supported by Severstal, the Abinsk Electric Steel Works and Magnitogorsk Iron&Steel Works (MMK), which note an acute shortage of unalloyed ferrous scrap on regional markets. A representative of MMK confirmed this information to Kommersant, the others did not provide any comments.

The data prepared for the meeting of the working group of the Government Subcommittee on Customs, Tariff and Non-Tariff Regulation (which will consider the issue of export quotas) says that according to the analysis of the Russian market in 2020, a shortage of at least 1 million tons of unalloyed ferrous scrap is predicted. In addition, according to the agreed estimates of metallurgical and scrap collecting associations, the level of scrap collection of ferrous metals by the end of 2020 will decrease by 15%, from 26.8 million to 22.8 million tons, that is, by 4 million tons, which is comparable to the total amount of Russian export of scrap ferrous metals in 2019.

According to Kommersant’s information, the Ministry of the Economy is strongly opposed to quotas.

The Ministry insists that there is a lack of data on the critical shortage of scrap in the domestic market. In addition, FRTP’s proposal has the signs of violation of Russia’s obligations to the WTO.

The Ministry of the Economy’s letter to the Ministry of Industry and Trade dated June, 23rd stresses that the issue of quotas for the export of scrap was repeatedly discussed at the government level, but the final decision was to abandon quotas and introduce the exchange mechanisms for the sales of scrap. The corresponding decision was made in October 2019 by Deputy Prime Minister Dmitry Kozak, but after he had left the government, exchange trading failed to start. The Ministry of the Economy left Kommersant’s inquiry without response.

The Association of metal scrap processors RUSLOM.COM informed Kommersant, that although the FRTP justifies the need for restrictions on a possible shortage of raw materials during the period of quarantine measures in the country, there have been no real cases of stoppages or failures of metallurgical production due to a lack of scrap.

According to the Association, in fact, metal production is decreasing and ‘at present, scrap collectors in many regions are already experiencing problems with sales’.

Maxim Khudalov from ACRA agreed that the demand for scrap this year will decrease, as the demand for rolled steel and pipes in Russia is obviously going to decrease. This is confirmed by the forecasts of metallurgical companies: MMK expects a decrease in metal consumption in the Russian Federation by 7-10% by the end of the year, Severstal – by 6-9%.

Evgeniy Zaynullin, Kommersant

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