Russian alloy smelters urge rethink on export tax

Several Russian ferro-alloy smelters are urging the government to rethink its plan to levy an export tariff on ferro-alloys from 1 August-31 December, warning that they cannot afford to lower their export prices enough to remain competitive with a 15pc tax factored in.

"We have been scratching our heads for the past three weeks since the tax was announced," one producer said, adding that they are still unsure how to navigate the introduction of tariffs that will render their exports uncompetitive unless they slash prices. "We are trying to find ways to serve our customers," they said, adding that they have no intention of declaring force majeure on existing contracts and have been dipping into the spot market to buy extra ferro-tungsten outside Russia with which to fulfil those commitments.

Several Russian smelters do not have their own mines from which to source feedstock, meaning they are exposed to seaborne spot prices and indexes to buy products such as tungsten concentrate — squeezing their margins and making it even more difficult to offer finished products at a reduced price, the producer said.

Tungsten concentrate prices continue to climb amid tight supply of primary and secondary raw materials, with some offers in Europe now punching as high as $235/dmtu in-warehouse Rotterdam.

Even consumers outside Russia — who do not face the prospect of a new 15pc tariff on their finished product sales — are voicing unease about rising raw material costs, with one commenting this week that tungsten carbide prices are not high enough to accommodate ever-increasing input costs.

The key focal point of the export tariffs — which encompass a wide range of ferrous and non-ferrous products — should be items such as base metals, for which international prices have surged in the past 18 months, a market participant said, arguing that it does not make sense for lower-volume items such as ferro-alloys to also be caught up in the measures — particularly given revenue from the 15pc ferro-alloy export tax will not generate a significant amount of income relative to other products.

Explaining the tariffs on 24 June, the government said income from the duties will be used "to compensate" for rising metal prices in Russia's domestic market. First deputy prime minister Andrei Belousov added that Russia's economy is not ready for an "avalanche-like shock transfer" of global metal prices to the domestic market.

Market participants are monitoring developments to see if the Russian government is willing to review the ferro-alloy component of the tariffs. Even if a formal appeal makes progress, it is possible that the ferro-alloy tax would only be reduced slightly — to 12pc, for example — which would still render Russian export prices uncompetitive against China, a European trader said.

Although the tariffs are being levied in response to sharp increases in international commodity prices in the past year, ironically, it is the tariffs themselves that have generated more uplift to European ferro-tungsten prices than has been seen for some time. Prices for 75pc grade alloy have risen by almost $5/kg since the Russian government's announcement on 24 June, now standing at a three-year high of $38-39.50/kg duty paid Rotterdam.

US ferro-tungsten prices are also moving higher as the tariff looms, assessed at $17.10-18.00/lb fob North America warehouse yesterday, up from $15.80-16.00/lb fob three weeks ago. The US ferro-tungsten market is fairly small compared to other ferro-alloy sectors, but it has no commercial production and so relies heavily on imports — half of which came from Russia in 2020 at 25t.

Other ferro-alloy markets have been less reactive than ferro-tungsten but are monitoring the situation closely — along with this week's civil unrest in South Africa — but without a major impact on spot prices. European prices for low-carbon ferro-chrome did creep up immediately after the government's announcement on 25 June, amid speculation and supply concerns, but have stabilised somewhat amid the summer slowdown at around $1.80-1.90/lb ddp for 60-64.99pc Cr grade and $2.00-2.10/lb ddp for min 65pc Cr grade.

Ferro-titanium traders have moved quickly to get as much Russian alloy trucked across the border as possible before 1 August and prices for Russian grade have crept up in Rotterdam, but slow seasonal spot trade is limiting price movements. Argus assessed Russian grade min 70pc Ti ferro-titanium at $6.00-6.85/kg duty unpaid Rotterdam yesterday, up from $5.25-6.00/kg on 23 June just before the tariffs were announced. This compares with western grade ferro-titanium assessed yesterday at $6.60-7.30/kg duty-free Rotterdam.

By Ellie Saklatvala and Sian Morris