Russia is considering imposing an export duty on iron ore and rolled steel products as a measure to increase domestic supply and prevent domestic price rises, the Russian newspaper Kommersant has reported citing a letter from Russia's economic development ministry.
Accordingly, one of the ministry's tax schemes proposes the introduction of a 10 percent export duty on shipments of rolled steel products and a 30 percent duty on exports of iron ore. While maintaining prices at the December level, this may bring the state budget an additional $1.5 billion. An alternative proposal includes a progressive scheme with flexible duties depending on world steel prices, that may add $218.4 million to the state budget. In addition, the ministry would also continue to insist on long-term contracts between steelmakers and consumers. The consideration by the ministry of such measures is driven by complaints from Russia's auto industry and inappropriate pricing strategies in the local market.
Kommersant said that the new export duties would primarily hit the Russian iron ore producer Metalloinvest, the overall export share of which amounts to 50 percent of its own production, as well as rolled steel producers Severstal, MMK and NLMK, whose rolled steel exports account for 45 percent, 35 percent and 50 percent shares respectively of their outputs. Mechel could suffer from the export duty on iron ore, as it ships up to four million mt per year to China, although the negative effect may not be significant.
Citing the response from the association of Russian iron and steel producers, Russian Steel, the newspaper said that Russia produces a surplus of iron ore each year, exporting 20-25 million mt annually, and the introduction of duties would result in reduced exports and increased consumption by steelmakers of their own raw materials. As a result, iron ore producers, who also sell in the domestic market, would be forced to reduce production, and thus domestic prices for raw materials would not change.
The situation is similar for rolled steel products, according to Russian Steel. Based on the calculations of Russian steelmakers, with a 10 percent export duty the reduction in cold rolled steel exports (which totaled 1.7 million mt in 2010) would amount 20 percent, while the reduction in hot rolled steel exports (7 million mt in 2010) would total 50 percent. In addition, the exported flat steel products are simply not in demand in the domestic market, and, thus, Russian Steel said, the introduction of duties would not lead to lower prices, but only to a decrease in production volumes.