The Russian government may soon impose export duties on a number of products currently traded with no restrictions, of which the local metallurgical and coal sectors, among others, are expected to be impacted the most. According to Russian sources, they anticipate all longs and flats, as well as billet, slab, pig iron, coal and iron ore, will be included in the measure. Scrap exports, however, will be excluded, given the currently effective quota trade restriction.
According to the latest information circulating in the market, the size of the duty will depend on the local currency rate. If the rate is 80-85 rubles per US dollar, the duty will be four percent, if it is 85-90, the duty will be 4.5 percent, at 90-95 rubles to the dollar it will be 5.5 percent, and if the exchange rate is over 95 rubles, then the export tax will reach seven percent. However, there are different readings of the likely period of implement of the duty. The initial message stated it will be imposed from October 1, 2023 until December 31, 2023, while the latest publications in the local Russian press state the period may be as long as until the end of 2024. Some mills expect the measure will be valid only for the October-December period, but “the approach to the tax may later be differentiated.” “The cargoes which have already been declared and cleared by customs cannot be subject to the duty… only the new cargoes,” another source commented.
It is worth mentioning that the issue of export duty in Russia is now in the stage of being an initiative and has not yet been officially adopted, although “the market is actively discussing it and includes the tax risks in order to estimate export contracts.” Some sources believe there should be further consultations held with businesses. Russian producers comment that the official reason for such an initiative is to bring under control the increase in domestic steel prices and so that the mills would not have the appetite to hike offers locally once the ruble devaluates and export parity increases. “I think it is very sad news for Russian steel exporters. The only good is that it is just at the talks phase now,” one Russian billet seller said. Another market source said that he believes that raw material exports, where margins are lower, will be affected more than steel, adding, “Steel mills don’t have negative export margins now. So, they will share the margin with the government, when it exists, of course.”
It is widely believed that Russian billet, slab and most importantly raw material exports will be impacted the most. In the billet market, EAF-based suppliers, especially those not having their own raw material, are expected to have issues since their profitability is already questionable with the current scrap price levels. Integrated steel producers are expected to continue exporting slab and billet, though with greater caution and maybe in lower volumes. “Most probably they will give up sales of the last 30,000-70,000 mt of monthly outputs. These lots are most expensive in terms of costs and are usually sold at the lowest price,” a source told SteelOrbis. The suppliers’ flats and longs export segments, which have been the least active in recent months in terms of volume, are expected to simply lose a certain percent of their margins.
Both steam and coking coal exports from Russia are expected to be impacted severely, given the already low prices. In the PCI segment, with the latest deals to China at $155-160/mt CFR, the new tax will “eat $10/mt” at the current exchange rate, according to sources.
As for pig iron exports, market sources do not expect a drastic drop in volumes in general, but a sharp fall in profits. “The last time when the tax was 15 percent, the pig iron [export] flow continued. If there is demand in the market, the mills will sell and ship at the current good exchange rate. However, raw material prices are high now, so it is not clear how big mills’ margins are now,” a trader said.
It is worth mentioning that the products of the oil and gas industry, and wood, scrap and grain, are excluded from the expected regulation, as well as certain products of the machine building sector such as drones and various aircraft, optical instruments, weapons and ammunition.