Russia struck a preemptive blow with a crowbar, ahead of Europe

Written by The Frontier Post

Valery Mikhailov

This week the Russian government decided to increase the export duty on ferrous scrap from 70 to 100 euros per tonne. The new rate will be in effect from January 1, 2022 and has, if not prohibitive, then very close to that level.
Interestingly, the idea to further limit the export of scrap metal emerged in the fall almost simultaneously in Russia and the European Union. But the Russian bureaucracy turned out to be quicker in implementation. But there is no doubt that the European one will also take a similar step in the end. Because scrap of ferrous metals is becoming more and more demanded and scarce raw materials. And a serious struggle is being waged for him on the world market.
Who needs scrap metal and why – and why suddenly such a fight went for him?
To begin with, 95% and more, that is, almost completely, the operation of electric steel-making facilities depends on scrap. For information: according to the WorldSteel association, in 2020 the share of electrometallurgy in Turkey was 69%, in Europe – 42%, in Russia – 32%, in Ukraine – 5.5%. For other methods of steelmaking, scrap is less important, but still necessary. If, with the electric method of steel smelting, 1.1 tons of scrap are needed to obtain a ton of the end product, then for open-hearth smelting, 0.4-0.5 tons are needed, and for converter smelting, 0.2-0.25 tons.
Further, metal recycling is simply cheaper than the numerous procedures that go from ore mining to steel smelting.
Plus, at the end of last – the first half of this year, there was a frantic (3-4 times) rise in prices for iron ore. In particular, due to a sharp reduction in its production in Brazil due to pandemic consequences and the rapid recovery of the Chinese economy. That by itself forced metallurgists to pay increased attention to scrap metal, although it pulled its prices up as well.
Well, where to go from the fight against carbon, the need to achieve “carbon neutral” and so on. Recycling scrap metal, of course, reduces emissions of CO2 and other related carbon compounds. And up to a considerable 60%. So the use of scrap metal is a key factor in reducing carbon emissions. What in the light of the upcoming introduction of a carbon tax by Europe (and then, perhaps, by the entire collective West) of a carbon tax is becoming even more important – ecology is ecology, and money loves the bill.
Deputy Minister of Economic Development Vladimir Ilyichev said about the increase in the export duty rate: “The measure is being taken to provide the domestic market with raw materials for steel production and to keep prices down. At the same time, it is important for us not to harm the profitability of exporters and reduce employment in scrap procurement. If the dynamics change at the end of December, let us return to the question of the rate of duty on scrap. “
In November, the price for a ton of ferrous scrap on the Russian market rose to 29.5 thousand rubles, that is, to $ 400. On the market of Turkey, the largest importer of Russian (and, by the way, European too) scrap metal, prices have risen to $ 500 per ton. Actually, the duty of 100 euros in most cases will make the supply of scrap to domestic metallurgists more economically justified. Although the “scrap metal workers”, of course, are unhappy with this decision. The European Union is taking a different path in limiting the export of scrap metal. The European Commission (EC) presented a draft document regulating, among other things, the export of ferrous metals – Waste shipment regulations (WSR). And although European metallurgists called for a complete ban on the export of scrap, emphasizing the effect of reducing CO2 emissions in this case, the EC has so far decided only to severely restrict exports to non-OECD countries and to endow itself with additional powers.
To obtain the right to purchase European scrap, non-OECD members will have to prepare an official appeal to the EC with justification of the need to purchase scrap and indicating the possibilities for its processing. The EC will also receive the right to prohibit exports if there are suspicions (!) That it may harm the health and life of people. That is, for non-OECD countries, a manual regime is introduced by the largest exporter of scrap, which accounts for 25% of the world market.
A quarter of all European exports go to such countries. Of the major players, India, Pakistan, Egypt, Malaysia, Indonesia, China and Russia will be subject to restrictions. Given this circumstance, the decision of the Russian government is all the more timely. By the way, Turkey, which is the largest importer of scrap from the EU, is an OECD member.
However, the EC is also empowered to control export volumes even to OECD countries. And if the volume of exports “grows sharply” and “can harm the environment or the health of society,” the EC may decide to stop exports to them as well. At the same time, the document does not define what “sharp growth” is. That is, again, a manual mode is introduced – just a little softer.
It is expected that the adoption of the document will lead to a reduction in the export of scrap from the EU by 5-6 million tons per year, which is 5-6% of the world market. By the way, in 2020 Russia exported 4 million tons of scrap from the procured 26.4 million tons.
Against the global background of the struggle for a scarce resource, Ukraine stands apart. For 10 months of this year, the export of scrap metal from Ukraine has grown 15 (!) Times, exceeding the very significant for the country half a million tons, of which 90% were shipped to Turkey.
For almost a year now, Ukrainian metallurgists have been begging the authorities in Kiev to take at least some measures to prevent the export of raw materials (the Russian government began to take appropriate measures last winter). At the same time, the “Sorosyatskie” Ukrainian media write that the export ban by Kiev is not good and uncivilized.
And Zelensky is terribly afraid of offending “Rejep’s friend” in any way, who, as he said at a recent press conference, is discussing such important things with the Ukrainian president behind closed doors that oh-ho. For a friendly pat on the shoulder and occasionally uttered by Erdogan ritual phrases that Crimea is Ukraine, Zelensky merges various Ukrainian markets with Turkey, makes many concessions and even rushes to sign an agreement on a free trade zone (the process is sabotaged by the local bureaucracy), which may become the last nail in the coffin of the Ukrainian economy.
But the final nail for the Ukrainian metallurgy can be just the decisions of Russia and the European Union on scrap metal, which will force the Turks to clean up all scrap from Ukraine. And at the same time, it is possible that Zelensky will also rejoice at the powerful blow he inflicted with the help of Erdogan on Akhmetov, who quarreled with him. Actually, all this suggests that the current redistribution of the scrap metal market may be a harbinger of the upcoming redistribution of the ferrous metals market, in which Ukraine, due to the stupidity of its leadership, may become the first, but most likely not the only victim.

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