The government of the Russian Federation is currently mulling the possibility of exempting rebar, wire rod and pig iron from the export tax introduced back in October 2023. This development follows the complaints of domestic long steel producers, which have been pointing out the low profitability and competitiveness of Russian longs compared to other global producers. Particularly, according to market sources, the mentioned discussions among government institutions have been pushed for by Tula Chermet, a large producer of both longs and pig iron, but also by the rebar and wire rod producers located in the Rostov region. “It seems a done deal from June. The market is waiting just for the product list [exempted from the duty] to be published,” a source told SteelOrbis.
“We expect the duty will be canceled only for wire rod and pig iron, and it will stay for rebar,” a Russian producer said, adding that the effect will be mainly on wire rod exports, which are expected to increase as some mills would be interested in redirecting volumes from the local market, having an additional $30-40/mt due to exemption from the quota. “For rebar, I also personally expect some increase in sales overseas even with the duty, as the lower burden on wire rod will make an impact,” he said. However, the low export demand in key sales outlets particularly for steel rebar may be an obstacle to more active Russian exports, given also the competition with Egypt, Algeria, and Turkey for Mediterranean and African buyers. In addition, many believe that ex-Russia longs will still be sold at a discount versus the so-called clean origins, taking into account the risks from sanctions.
If some pressure on long steel prices from Russia emerges after the cancelation of duty, the pig iron market is not expected to be impacted significantly, at least in the short term. “The deficit in the pig iron market is much higher than the factors which can push down,” a mill said. “Prices [for pig iron from Russia] will not drop as much as the amount of duty as the volume offered in the market will not increase… Sellers will just earn in some markets where they sell stable volumes,” another source said.
According to some sources and local media, the government also plans to increase the tax on corporate income depending on the exchange rate, along with the exemption of the named products from the export tax. The initiative includes the increase of the tax from 20 to 25 percent, the same as in Iran and China. Some entities have been lobbying for the measure, saying that it would be fairer to pay taxes from income rather than an export tax on sales revenue. However, many argue that such a measure will most probably not be selective and will involve the companies not engaged with steel and raw material exports. The potential increase in corporate income tax, in line with planned similar actions regarding personal income tax, as a means to collect additional funds to support the economy, but most importantly to finance the military sector which is for the third year engaged in Russia’s war against Ukraine.
The export duties were imposed earlier for a period from October 1, 2023, until December 31, 2024, at a rate of 4-7 percent if the exchange rate is at $1 = RUB 80-95 and zero percent if the rate is below $1 = RUB 80. Currently, the rate is at almost $1 = RUB 92. Exports to the EAEU countries are excluded from the duty. Previously, the government of Russia exempted thermal coal and anthracite from export tax.