Stoppage threatens Severstal scrap supplies

The main suppliers of scrap which provide approximately 200,000 metric tons of scrap, or 70 percent of monthly requirements, to the Russian steelmaker Severstal are planning to temporarily stop their deliveries from January 20, 2007. According to the letter which has been addressed by the scrap suppliers to Severstal's Commercial Director Mr. Igor Nechaev, starting from January 1, 2007, more than 90 percent of all scrap suppliers have switched to sales of scrap without VAT. Meanwhile, Severstal is offering to continue either with VAT included, or else at uncompetitive prices but with a zero VAT level. This disagreement between Severstal and the scrap suppliers is the main reason behind the decision of the latter to temporarily halt scrap supplies to Severstal starting from January 20, 2007, unless a compromise is reached before this time. As previously reported by SteelOrbis, the Russia Federation implemented the law canceling VAT collection on scrap operations as of January 1, 2006. However, the law reserves the right of interested parties to continue working with VAT. This provision has created some confusion in the market since the majority of scrap collectors have switched to sales without VAT, while many steel mills seek to continue working with VAT included.