Why is the volume of scrap collected in Ukraine falling?..Veniamin Kramer-Ukrainian Metal Scrap Association

Year 2005 was marked by the record low level of scrap collection in Ukraine for the last 10 years. The volume of scrap collected in the country reduced 18.7 percent to 7.634 million tons. As a consequence, the volume of scrap deliveries to the domestic market reduced 8.2 percent to 6.37 million tons, whereas the export deliveries fell 50% to 1.264 million tons from 2004. The main reasons for such a dramatic decrease can be outlined as the following: the interrelations between domestic scrap suppliers and consumers, weak law base regulating the operations with scrap in general and protecting the interests of scrap collectors in the country in particular, informal barriers on exports of scrap, including the problems on VAT reimbursement for exports and other ’invisible' barriers, and fear of lowering of metal-fund in Ukraine. The main problem in the relation of the domestic scrap consumers and suppliers is failure to pay in time for scrap obtained by Ukraine's metallurgical enterprises. Thus, according to the operational data, the debt of the metallurgists to the scrap suppliers in the middle of the second quarter of 2005 exceeded UAH 120 millions, and this tendency continued until the end of the year. Because of this, the scrap collecting companies are constantly lacking the financial means to increase the collecting areas and raise the scrap collection volumes. The question of ownership of production areas and processing equipment became the next stumbling block between the participants of the scrap market. Some are fighting for the right of free trade on the scrap market, others for limitation of this right to the owners of collection areas and specialized equipment. Due to this confusion on the market, although the number of the licenses, given out last year, increased to 1,670 compared to 2004, only a small percentage of these companies were active. Thus, according to the operational data, only about 480 companies were supplying scrap to domestic consumers and about 90 exported scrap. Taking into account an unwritten rule that to export Ukrainian scrap, a company should be able to supply sufficient volumes of scrap to the domestic consumers, the number of companies who were active in the scrap market last year did not in fact exceed 650-700, or 45 percent of all licensees. The official reason given for the reduction of collected scrap volumes in the country, the lowering of metal-fund, is rather exaggerated. But especially this fear led to taking all possible measures on limitation of export deliveries of scrap. In 2005, Ukraine exported 1.264 million tons of scrap, almost half of what was exported in 2004. Due to the fear of the declining metal-fund, energy supplies and other raw material prices rise, the domestic metallurgical lobbies are forcing for limitation of export volumes. The first steps have already been taken. Thus, the Cabinet of Ministers of Ukraine is examining the possibility of withdrawal of scrap from free-zone trade with Moldova to redirect, rather insufficient volumes of scrap, to the domestic consumers. In addition, the Tax Agency of Ukraine continue to torpedo the scrap exporters via non rebates on VAT for scrap exports, justifying the measure by the fact that only producers have rights on VAT rebates, while scrap collectors and processors are defined in legal term as only ’processors'. The essential factor in lowering of volumes of scrap collection is imperfection of the active legislative base which forces the scrap collectors and processors to sustain technologically outdated equipment up to complete ending of the period of its amortization. This policy deprives the scrap collectors of chances to technologically update their facilities to increase the capacity levels. All attempts to change the order of things on the scrap market last year came to nothing. Out of 16 bills, covering the areas from step by step reduction in export duties, allowing cash-based transaction, questions of technologically outdated equipment, steeling the deadlines for payments, allowing the export of scrap of alloyed metals and equalization of railway tariffs, none was found support of Ukrainian Supreme Rada. But it seems as the process of law making on the issues will continue as soon as the battles of elections will calm down. Until then, the calmness on the Ukrainian market is unrealistic to obtain and we can expect only further decrease in the volumes of scrap collected. Veniamin Kramer: Ukrainian Metal Scrap Association