A ban on the export of scrap metal will destroy incentives to increase scrap collection in Ukraine

The metallurgical lobby continues to destroy the scrap collection industry. Extending the export duty of € 58 per ton for another 5 years was not enough, now they propose to completely ban the export of scrap metal.

Konstantin Bass, Chairman of the Supervisory Board of the UKRMET Group of Companies, expressed his reasoned position on this issue.

If we take a closer look at the arguments for the need to completely ban the export of scrap, then their inconsistency is obvious:

1. Multiple growth in scrap exports.

In June, scrap exports amounted to 84.7 thousand tons, which is 43% higher than the result in May, which was a record over the past 2 years. In just 6 months of this year, exports have grown almost 14 times - up to 231 thousand tons. The total export volume for six months did not exceed 12% of the total scrap collection.

The sharp increase in exports is due to the very high difference between the quotations of scrap metal in the world and domestic prices, even taking into account the high export duty. The export of scrap metal is an effective stimulus for the development of the market, allowing companies to earn for their own development against the backdrop of domestic purchase prices, which do not allow doing this. Moreover, it was thanks to exports that an incentive appeared to increase scrap collection in the country.

It should also be noted that more than UAH 400 million was transferred to the state budget from the payment of the export duty on scrap.

2. Scrap metal shortage.

There is no shortage, which metallurgists are talking about, on the market. Even if there were more scrap on the market, metallurgists would not be able to use it to increase production and exports. In February and the following months, buyers corny closed the gates of their factories from suppliers of raw materials, set quotas for deliveries, at the same time, urgently reducing prices and not adhering to payment agreements, thereby increasing the debt to sellers. Metal factories' warehouses are still full of stocks of scrap, which they do not have time to process in production.

After the rise in domestic prices in the first half of the year, the indicators of the scrap market showed impressive growth:

• scrap collection - by 42.2%, to 1.98 million tons;

• supplies of scrap metal - by 26.3%, to 1.65 million tons.

June indicators of scrap collection (402.3 thousand tons) and scrap supplies to metallurgical enterprises (298.4 thousand tons) were the highest in 6 months of this year. In fact, now everything that is not consumed by domestic buyers is exported. In other words, adequate domestic prices stimulate a sufficient increase in scrap collection.

3. The need for scrap for decarbonization.

The argument about raw materials for decarbonization does not stand up to scrutiny. In Ukraine, only 5% of electric steelmaking capacities, the rest is converter and open-hearth production. All announced projects for decarbonization of metallurgical enterprises will be implemented not earlier than 2023-2025. There is no need to impose a ban on the export of scrap right now.

 4. High prices for raw materials.

World scrap prices are bad, but equally high steel prices are good.

During the record growth in steel and iron ore prices in 2020-2021. Ukrainian metallurgical enterprises were able to significantly improve their financial performance.

If we talk about individual companies, the situation is different.

In the first quarter of this year, Metinvest increased its revenue by 43% - to $ 3.6 billion, EBITDA - by 3.9 times, to $ 1.46 billion. Net profit in 2020 increased by 54%, to $ 526 million. grew due to the export of both iron ore and steel.

The situation is different for Interpipe, whose electric steel-making capacity is completely dependent on scrap. There, in the first quarter of this year, profit fell by 90% - to $12.8 million, in 2020 it fell 4.2 times - to $195.1 million. "Interpipe" in the form of cheap scrap from the domestic market simply receives "support" for their indicators - their revenue in 2020 and in the first quarter fell by about 20%.

If we talk about the industry as a whole, in the first half of the year, revenue from steel exports increased by 57% to $6.1 billion. Against this background, revenue from scrap export is insignificant.

 5. Lack of investment in scrap collection.

As long as domestic prices are $200 per ton lower than world prices, no scrap collection will grow. In this case, there is a simple market formula: the higher the purchase prices, the greater the scrap collection.

The actions of metallurgists and a number of people's deputies to ban the export of scrap will affect, first of all, the work of such state-owned companies as Ukrzaliznytsya, Naftogaz, Ukrgazvydobuvannya, Ukroboronprom and others, which, when selling their scrap metal, receive less than $200 per ton. These are all direct losses to state-owned enterprises and directly to the state budget, which are formed due to the lowered price of selling scrap to private companies.

If we are talking about the practice of banning the export of scrap in other countries, then, for example, simultaneously with the restriction of the export of scrap in Russia, from August 1, temporary duties on the export of metals will be introduced, which is aimed at removing excess profits from metallurgists. We have no such practice in relation to metallurgists.

The arguments used by metallurgists are not even manipulation of facts, but outright disinformation.

The existing export duty allows metallurgists to buy raw materials by $150-200 below the prices of European and Turkish producers and, thus, to receive excess profits. Whereas scrap collectors incur losses due to low purchase prices for scrap.

The current price situation and toughening consumer initiatives are not conducive to stimulating an increase in scrap collection rates. The scrap price should cover the costs of its collection, processing and shipment to the consumer, and also include the marginal income of scrap collecting companies. it would allow scrap collectors to earn and develop.

Unilateral pressure from metallurgists in the absence of any feedback with suppliers will lead to a drop in scrap collection, degradation of the scrap collection business, and increased mutual distrust between scrap sellers and consumers. In such conditions, no one gets anything. Metallurgists know that it is expensive and inefficient to import raw materials, but they do not want to somehow stimulate domestic scrap collection, the criterion of which is an adequate purchase price. The ban on the export of scrap will generally destroy any incentives to increase scrap collection.

For our part, we expect an objective assessment of the situation from the legislative and executive authorities. We hope that after all, pragmatism and protection of state interests will prevail in decision-making.