Under the effect of the enlargement of the existing
scrap processing companies, the number of players in the Ukrainian domestic market has started to decrease. In addition, the favorable situation in the global
scrap market allows the Ukrainian
scrap processors to raise their procurement
scrap prices.
The current situation in the Ukrainian domestic
scrap market is more stabilized compared to the situation in previous years. This was possible to achieve due to the favorable conditions in the
scrap export markets, which helped the domestic
scrap processing organizations to improve their financial conditions.
The legal base of the industry has also undergone some considerable correction and improvements. These include the improvement of the export duty system, of the payment system for
scrap purchases from the public, as well as the cancellation of VAT payments on all
scrap operations in the market.
The development of the situation in the Ukrainian market will mainly depend on:
- the global increase tendency in
scrap prices,
- the decrease in the
scrap collection potential in
Ukraine,
- the country's admission to the WTO,
- the realization of some projects to increase crude steel capacities in
Ukraine and the realization of similar projects in
Russia.
Evaluation of the Ukrainian domestic scrap market
In 2006,
Ukraine collected 7.726 million metric tons of
scrap – up 1.2 percent compared to 2005. Out of this volume, 6.98 million metric tons was supplied to the domestic market – up 7.6 percent compared to 2005, while 746,000 was exported – down 41 percent compared to 2005. Therefore, the percentage of domestically collected
scrap which is consumed domestically increased to 90.3 percent in 2006, compared to 83.4 percent in 2005 and 73.9 percent in 2004.
Scrap market operations in
Ukraine 2005-2006 and Q1 of 2007, million metric tons (unless otherwise specified)
According to the estimates of the Ukrainian Metal
Scrap Association, in 2006 the needs of the domestic steelmakers for
production of a total of 40.9 million metric tons of crude steel was 96 percent satisfied by deliveries of domestic
scrap (here the figures consider the
scrap shipped to steelmakers by the domestic
scrap processors).
It should be recalled that in 2006 the country's
pig iron production increased by seven percent, while export of
pig iron from
Ukraine increased by 43.1 percent and export of
semis went up by 26.6 percent year on year. Consequently, the domestic steel mills decreased the processing of their own
scrap from the waste of
production by a couple of thousand metric tons.
However, in 2006 the
scrap market retained some problems of the previous year; for example, late payments for
scrap by steel producers, non-reimbursement of VAT from
scrap exports, and increasing volumes of deliveries of low quality
scrap in the market [to steel mills].
Yet, in 2006 many
scrap processing companies invested large sums of money in the modernization of existing equipment and in the purchase of new equipment.
In the first quarter of 2007, the
scrap collection volume in
Ukraine increased by 32.5 percent year on year to 1.678 million metric tons. In addition, deliveries of
scrap to domestic consumers increased by 30 percent to 1.54 million metric tons compared to the corresponding period of 2006, and by 6.3 percent compared to 2005. Therefore, the share of domestic deliveries in the overall
scrap collection volume in Q1 2007 decreased to 91.5 percent from 93.4 percent in Q1 2006, and increased from 79.3 percent in Q1 2005.
According to the Ukrainian Metal
Scrap Association, in the first quarter of 2007 domestic deliveries satisfied the steel mills' needs for
scrap by 82.1 percent.
According to the domestic steel producers, in 2007 to produce one metric tons of crude steel, they would need approximately 199 kg of
scrap. However, according to operational data for the first quarter of 2007, steel mills used an average of 144.5 kg per one metric ton of crude steel.
The increase in domestic deliveries in the first quarter of 2007 was mainly determined by a high procurement
scrap price in the Ukrainian market. In 2006, the price rise had a sequential character from an average of $179/mt (including delivery and VAT) in January to an average of $257/mt in December. It should be said that throughout the whole of last year the domestic procurement price for
scrap was much higher than the export procurement price for
scrap in the Ukrainian Black Sea ports by $22-45/mt. For comparison, the difference in
Russia ranges from $1/mt to $45/mt.
Average scrap prices in 2006-2007 ($/mt)
In the near future the market will be developed according to a stable trend regarding both compatible procurement
scrap prices and a high level of
scrap deliveries to the domestic steel producers.
The development of the
scrap market will be determined by the following factors: level of
scrap collection potential, the condition of
scrap processing equipment, and technological renovation in
scrap processing industries.
Evaluation of Ukrainian scrap export markets
In 2006,
Ukraine exported 746,000 metric tons of
scrap, showing a 41 percent decrease compared to 2005.
Scrap exports saw their lowest level of the last ten years in 2006. The main reasons for the
scrap export decrease in 2006 were the strong demand in the Ukrainian domestic market, export taxes on
scrap, problems with the VAT rebate from
scrap exports, and the drop in
scrap collection levels.
The main importers of the Ukrainian
scrap in 2006, as in previous years, were
Turkey (58.9 percent of all export deliveries),
Egypt (24.8 percent of all export deliveries), and
Moldova (10.5 percent of all export deliveries).
In general, the export deliveries of
scrap decreased to all destinations regardless of the high global prices of
scrap. The average export price during the last year increased from $205 to $246.
According to the experts' estimates, the real price of
scrap in the Ukrainian ports in H1 2006 increased from $182/mt to $258/mt, and then decreased in August 2006 down to $233/mt. Meanwhile, in December 2006 it increased again to $255/mt.
In Q1 2007,
Ukraine exported 142,400 metric tons of
scrap, showing a 17.7 percent increase year on year. In addition, the export level in March of the current year (62,800 metric tons) was the highest level since quite some time, due to the high internal
consumption (demand), warm weather, etc.
During the first three months of 2007,
scrap exports to
Turkey accounted for 54.6 percent of overall Ukrainian
scrap exports, while
Egypt and
Moldova accounted for 32.4 percent and 6.5 percent respectively. It should be said that export deliveries of
scrap to
Moldova decreased considerably over the last year and in Q1 2007 due to the exemption of
scrap from the free trade regime between
Moldova and
Ukraine. The average price for
scrap in Q1 2007 increased to $253/mt from $198/mt in Q1 2006.
Geographical structure of Ukrainian scrap exports in 2005-2006 and Q1 of 2007
Conclusion and forecasts
1. Due to the plans announced for the
construction of new steel smelting capacities and the modernization of the existing ones, by 2012 the total increase in crude steel
production will be equal to eight million metric tons. Consequently, the problem with domestic
scrap deliveries will become a very serious issue.
The issue is made more serious by the continuous decrease in
scrap collection and processing levels. According to the estimates of some experts, by 2012
Ukraine steelmakers will face a
scrap shortage of 3.5 million metric tons.
2. The process of the rise in
scrap consumption has an international character due to the increasing crude steel
production capacities world-wide. For instance, in the first quarter of 2007 crude steel
production in
Europe increased by four percent while
scrap consumption increased by five percent.
India and
China are also showing fast growing
scrap consumption. According to some data sources, in 2007 the
consumption of
scrap in
China may exceed the level of 80 million metric tons - up 20 percent compared to 2006.
Russia also shows positive tendencies in
scrap consumption. In Q1 2007, the share of domestic
consumption of total
scrap collection increased to 72 percent, while the share of exports decreased to 28 percent. According to some estimates, by 2010
Russia may acquire the status of a net importer of
scrap.
3. In the near future, the development of the Ukrainian domestic
scrap market will follow the global tendencies – i.e. increase in primary cost of
scrap processing, growing demand, increase in scarcity and in prices for
scrap. The characteristic of the Ukrainian domestic
scrap market – lowering of
scrap collection volumes due to rising exports of steel products from the country (above all,
semis), should be added to above characteristics as well.
In conclusion, it should be said that a positive scenario for the development of the Ukrainian
scrap market seems to be impossible without first changing the industry's legal base and the relation between the
scrap consumers and
scrap processors in the domestic market.