Russian media sources report, citing unnamed government insiders, the Russian government is planning to substantially increase the country's scrap export duty in order to discourage exports of this raw material and thereby increase its domestic availability.
The level of increase may be as large as eight-fold, from the current €15/mt up to €120-130/mt. The question of a possible increase in scrap export duty is said to be scheduled for discussion on July 24 at a government meeting on metallurgy.
By increasing the scrap export duty, the government's aim would be to stabilize the current situation of rising finished steel prices in the Russian domestic market. According to domestic steelmakers, rising raw material costs, including those of scrap, iron ore and coke, affected their production costs and, thereby, the prices for end-products. To stop this chain reaction, the government has already suggested that the steelmakers conclude long-term contracts with the coking coal and iron ore suppliers at fixed prices. The turn has now come to scrap supplies.
Moreover, the discouragement of scrap exports by increasing the export duty on this material may be considered as a preemptive measure against a possible shortage of scrap in the future. According to predictions by experts, although Russia will sustain its current scrap collection volumes at the level of about 30 million mt per year for the next ten years, it will not be able to increase it. With growing steel production, especially manufactured by the EAF route, this amount will hardly be enough to satisfy the domestic demand for scrap in the future. As a result, the increased export duty on scrap could have a positive effect on scrap availability in the domestic market in the future.
An immediate effect of the duty increase could be the flooding of ex-Russia scrap into the international market as exporters try to offload positions before the new tax rate becomes effective. This will probably result in excess supply and softening prices. However, once the new tax rate becomes effective the long-term impact on the international market could be a shortage of supplies.