On August 12, President Volodymyr Zelenskyy signed Law No. 2426 "On Amendments to Certain Legislative Acts (Regarding Shading the Market for Metallurgical Raw Materials and Operations with Scrap Metal)". This document was adopted by the Verkhovna Rada on July 14. Previously, market participants and industry experts have assessed this initiative as truly helping to shade the scrap metal market.Main pluses
This law allows you to solve two main tasks:
Possibility of legal work and attraction of investments in the scrap collection industry.
If investors see that this market has come out of the shadows and that they can work without fear of somehow breaking the law, then they will already have the motivation to calculate the return on investment and invest in this industry.
The possibility of integrating large metallurgical enterprises and scrap collecting companies.
In this case, metallurgists receive guaranteed supplies of raw materials. This can be achieved, among other things, by acquiring large scrap collecting enterprises by metal enterprises. A similar trend is observed, for example, in Russia, Poland and other countries. A specialized company has a guaranteed volume of scrap procurement, and metallurgists thus relieve themselves of a shortage of raw materials. With such an asset under management, it is easier to plan and production.
Implementation practice
We expect primary scrap collection to rise. The share of those working in the legal field will also increase. We already feel today that the primary preparation is beginning to come to life. This will have an unambiguously positive effect.
As a result of the shading of the market, it can be expected that the number of cases of “protection” by law enforcement agencies of primary scrap collection points will decrease. I think that it will not disappear by 100%, but the primary scrap collection points will be able to get away from this "protection" by 80-90%.
In my opinion, there will be no complete shadowing of the market. The shadow will be present in the market to one degree or another. For example, the law contains such a requirement as personal identification when handing over scrap metal. Now we, of course, carry out the "certification" of those who hand over scrap to our collection points. However, we are faced with the fact that many of our competitors do not fulfill this requirement. The donors themselves are not always ready to provide their personal data when issuing an act of acceptance of scrap metal, and this leads to their outflow. The client says bluntly: "But the competitor does not require a passport, I will go and hand over to him."
High expectations
The authors of the law expect that as a result of its adoption, about UAH 20 billion of working capital of enterprises in the field of scrap metal procurement will be withdrawn from the shadow, and the state budget will receive about UAH 1 billion of additional annual revenues. Also, about 10 thousand employees will be officially registered.
However, I do not see that Ukraine will receive such an effect in monetary terms. The scrap collection industry will not completely come out of the shadows, and the economic situation in the industry remains difficult, which hinders both its development and the process of shading in general. As practice shows, in times of crisis, any economic activity tends to go into the shadows for reasons of optimizing work and reducing tax pressure. Moreover, the law will in no way affect the main economic indicator of the industry - scrap prices. They change only on the basis of prices for finished products of metallurgical enterprises, which by 80% go to foreign markets.
General conclusion
The law is necessary and correct, it will significantly de-shadow the scrap procurement market and increase its investment attractiveness.
It takes into account all the necessary points to bring the market into the legal field, the document has been comprehensively worked out by market participants for a very long time.
The only thing is that Article 213 of the Criminal Code of Ukraine (“Violation of the procedure for procurement of scrap metal and operations with scrap metal”) is not excluded. We raised this issue, but it was ignored. Obviously, this was the desire of the metallurgists.
However, the law does not solve other problems of the industry, such as a drop in scrap collection, an imbalance in the pricing of scrap metal, and low economic feasibility of the scrap collection business. In 2020, according to my estimates, scrap collection in the country will not exceed 2.5 million tons, and according to the forecasts of the State Enterprise "Ukrvneshpromekspertiza", in 2021 this figure may fall to 2 million tons.
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