Russia’s 15% export duty hasn’t boosted flat-rolled prices as feared, traders say

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Russia’s 15% export duty on steel has not impacted market prices for flat-rolled products, either coming into the European Union or rolled within the 27-member bloc, market participants told MetalMiner.

“The Russian [steelmakers] are absorbing it completely,” one trading source said of the export duty.

A second trader noted a similar situation.

“The export tax has nothing to do with the customer here. That is the producers’ issue,” that source noted.

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Russia export duty after two months

Russia exports

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Their comments followed Russian Federal Government’s Decree No. 988 of June 25. The decree imposed a 15% export duty from Aug. 1 to Dec. 31 on all steel exports – finished and semi-finished – from the country and also the wider Eurasian Economic Union. That includes not only Russia, but also Armenia, Belarus, Kazakhstan and Kyrgyzstan. It also includes observer states Moldova, Cuba and Central Asian state Uzbekistan.

The duty also applies to certain base metals, including copper, nickel and low-grade aluminum products.

Federal government officials claimed then that sharply rising steel prices in Europe, Russia’s second-largest export market, were translating to higher steel prices at home.

The European Union is also Russia’s second-largest destination market for steel exports, including finished, semi-finished and tubular products. Those exports exceeded 4.02 million metric tons in 2019, the analyst said.

That number was down 20% on the year from 5.17 million metric tons, yet the bloc retained its place as Russia’s second-largest export market.

Several reasons have led to Russian producers swallowing the taxes, however, against earlier expectations that this would further push up prices, sources told MetalMiner.

“You simply cannot pass the tax onto the market if the market is slowing down,” one analyst remarked to MetalMiner.

Steel prices

Hot-rolled coil from West European mills is now on offer at €1,100 ($1, 290) per metric ton exw for December shipment. That is down from €1,120 ($1,310) earlier in September, sources said.

Cold-rolled coil in Europe normally carries a premium of €100-120 per metric ton ($115-140).

They also did not rule out further decreases. One source mentioned offers at less than €1,100 per metric ton exw.

Russian flats producer Severstal was offering in late August/early September HRC at €970-980 ($1,140-1,155) per ton cfr European ports, in comparison, the second trader said.

He believed, however, that Russian offer prices would need to further decline before becoming attractive to buyers.

“They need to export,” the second trader added about steelmakers there.

End users in the country are also likely holding on for lower prices, once they see that prices within Europe are falling, a third trader told MetalMiner.

Downward pressure

Fuller stocks and the approaching Russian winter are also adding to downward pressure on local prices within Russia, the third trader added.

Russia’s profit margin against production costs is also amongst the world’s highest, thanks to captive sources of iron ore, natural gas and coal and within the country, sources added. This has also helped producers swallow the export tax.

Concern over Chinese property developer Evergrande’s lack of cash and its subsequent inability to pay down debts that total $305 billion have also created worry about China’s appetite for steel and, consequently, pushed down iron ore prices.

Benchmark 63.5Fe iron ore price reached $109.10 per metric ton CFR Tianjin on Sept. 24. That compares with $220.10 on May 12, information from Trading Economics stated.

Iron ore prices are likely to fall further while the Evergrande debt crisis looms large, the analyst stated.

Chips and steel

A global deficit of microchips has impacted production amongst the auto and white goods sectors. In turn, it has contributed to Europe’s falling prices for flat-rolled steels, sources said.

The COVID-19 pandemic caused many microchip producers, such as those in Malaysia, to shut down. Many auto manufacturers in Europe also canceled their microchip orders. Tech companies and telecoms worked behind the scenes to improve network connections, as well as to provide equipment for home entertainment.

That shortage is also causing pauses in auto production around the world, sources said.

New vehicle registrations in Europe also saw double-digit declines in July and August, the European Automobile Manufacturers’ Association (ACEA) stated in a Sept. 16 report.

Registrations in August came to 622,993 units, reflecting a 19.1% decline year over year. Meanwhile, July registrations fell 23.2% to 823,959 units, ACEA stated.

Consumers’ hesitation for autos plus more market uncertainty have added to the restraint in prices, sources noted.

The MetalMiner Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2022. For more information, visit the Annual Outlook landing page

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