Ukraine extends scrap export duty for five years

Ukraine's parliament has approved a bill to extend the country's ferrous scrap export duty for another five years to September 2026. President Vladimir Zelensky has not yet accepted or rejected the bill.

Ukraine's scrap export duty was a point of contention when the country was working towards joining the World Trade Organisation (WTO), which it finally did at the beginning of 2008. The EU refused to endorse Ukraine's WTO membership unless the country agreed to reduce or remove its scrap export duty, which was at €35/t at the time. Ukraine subsequently agreed to cut the duty to €10/t for six years from the date of accession.

Ukraine increased its ferrous scrap export duty to €30/t in September 2016 and gradually increased it to the current level of €58/t in September 2019. An extension of the duty at the current price was submitted in early March, following discussions at the beginning of this year and a request from Ukrainian steelmakers in mid-February. The parliament's committee on environmental policy and management endorsed the extension proposal in early April.

The parliament said that an extension to the current duty system is required to limit scrap exports and support shipments to domestic steelmakers. And if the duty is removed, steelmakers may face a scrap shortage of around 23pc in a year's time. The introduction and gradual increases of the export duty reduced the domestic scrap shortage to zero in 2018 from 300,000t in 2017 and around 600,000t in 2015, demonstrating the need for the export duty, parliament said.

It estimated that the extension will create a fiscal revenue of around 1bn hryvnias/yr ($36mn/yr), because "scrap remade into finished steel products and then exported costs more than just exported scrap".

But scrap market participants disagreed with the economic rationale of the extension. Domestic scrap collection decreased by almost 39pc in 2015-20 to just above 3mn t from 4.3mn t. And scrap exports collapsed to just 26,400t from 1.21mn t over 2015-20, while delivery to steelmakers fell to 2.89mn t from 3mn-3.32mn t. This suggests that the elimination of the scrap shortage was the result of mills' lower requirements amid falling steel output and demand rather than reduced exports (see table)

. The number of scrap recycling companies in Ukraine fell to 900 today from around 1,800 in 2015, industry association UAVtormet said.

Meanwhile, higher scrap prices and robust trading activity supported Ukrainian scrap prices in the first quarter of this year, market participants said. The country's ferrous scrap exports more than quadrupled on the year to 49,000t in January–March. The rise in seaborne scrap prices made export shipments more attractive to suppliers, despite the export duty, and forced Ukrainian mills to pay higher prices in the domestic market.

The increase in domestic prices lifted steelmakers' receipts of ferrous scrap by 23.1pc on the year to 837,700t in January-March — far exceeding their scrap requirements as the country's steel production dipped by 0.5pc year on year to 5.29mn t in the first quarter. Ukraine's scrap collection also increased to 930,000t in January-March, up by 28.2pc on the year.

Besides Ukraine, Russia has also made plans to implement stricter export restrictions for scrap while Kazakhstan reinstated a ban on exports by truck. Both countries' restrictions were introduced after intensive lobbying by steelmakers despite protests from the scrap recycling industry.

By Valery Zavyazkin