Metal Scraps
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Why scrap metal picking fell to historic low?

Why scrap

16.01.2018 19:18

In March, the state enterprise Ukrpromvneshexpertiza, which collects economic statistics, reported that ferrous scrap picking last year reached its historic minimum.

"Picking of scrap metal in 2016 decreased to 3.5 million tons - this is the minimum figure for the last 20 years," the state-owned enterprise said.

The key factors of the catastrophic decline in scrap collection are the depletion of readily available sources of raw materials, the stagnation of mechanical engineering, the reduction in purchasing prices in dollar terms, and the exit from the market of some export-oriented enterprises.

"Ukraine has a substantial reserve of spent metal resources," said Yuri Dobrovolsky, deputy director of the state enterprise "Ukrpromvneshexpertiza", "So the total metal fund of the country includes about 600 million tons of metal, in the structure of which about 390 million tons or 65% is completely worn out metal , which should be replaced, however, the lack of investment in renewal of the country's fixed capital does not allow to receive potentially existing scrap volumes".

The lack of scrap in the domestic market has caused the worsening of the confrontation between metallurgists and raw material exporters in 2016.

Against the backdrop of the growing deficit of scrap metal, problems continue. As it was reported earlier, according to the forecasts of the metallurgists themselves, in 2017 Ukraine will become a net importer of scrap metal for the first time in history.

Main competitors

As it is known, in September 2016, President Petro Poroshenko signed the law that increases duties on the export of scrap metal from 10 to 30 euros per ton. This was to help to reduce the export of scarce raw materials and to increase its consumption within the country.

The law will be effective one year. Against the increase in the export duty on the Ukrainian scrap, the European Union made a statement, which insisted on preserving the principles of free trade.

"The Principles of free trade" mostly play into the hands of the interests of Turkey. According to the estimates of the State Enterprise "Ukrpromvneshexpertiza" almost all the Ukrainian scrap metal - 99.7% is sailed there.

Meanwhile, Turkey is Ukraine's main competitor in the external markets of metallurgical products.

Scrap is a strategic raw material for Turkey, as electrometallurgical plants have a high percentage in the industry. As the raw material they use scrap metal exclusively.

The metal produced in Turkey is sent to the machine-building plants in Europe too.

Scrap export in 2016

Last year, Ukraine sharply reduced the export of scrap - by 82%. So, if in 2015 from Ukraine 1.5 million tons of scrap metal were exported, in 2016 - only 272 thousand tons.

The strong fall in export supplies of scrap in 2016 is due to several factors:

  • As mentioned above, the scrap is reaches the end in Ukraine. Since 2000, the volume of its collecting is declining.
  • Until September 2016, while the duty was at 10 euros/ton, Ukrainian metallurgists bought scrap at a price higher than export parity.
  • Since September, the export duty for the export of scrap has been increased from 10 to 30 euros per ton.

Ukrainian metallurgical holdings using the scrap have managed to block the registration of export contracts.

Despite the obstacles, exporters managed to take out 270 thousand tons of scrap. At the same time, according to the estimates of the SE Ukrpromvneshexpertiza, in 2016 the scrap metal deficit in the domestic market amounted to 300-400 thousand tons.

Why the export duty did not save?

Completely stop the export of scrap metal from Ukraine in 2016 failed due to a favorable conjuncture on the international steel market - a significant increase in prices for ore - semi-finished products - rolled steel.

Since scrap metal is an important raw material for metallurgical plants, the prices for it also grew after the ore. This made the export of scrap from Ukraine cost-effective, despite the duty of 30 euros per ton.

Thus, the largest volumes of Ukrainian scrap metal in 2016 were exported in April - 81.5 thousand tons and in May - 109.5 thousand tons. In June, shipments fell sharply to 26,000 tonnes and from July they stopped until October.

In October, despite the duty of 30 euros/ton, 6,800 tons were exported. In November, exporters stepped up by sending 14.35 thousand tons of Ukrainian scrap to other countries. In December, volumes increased to 22 thousand tons.

That is, the next round of growth in prices for coke, ore, billet and rolling pushed up prices for scrap metal. Thus making its sale abroad expedient.

Weighted average (monthly and annual) declared export prices of iron ore raw materials of Ukrainian producers in 2015-2017, $/t. DAF / FOB *

* - PJSC "Zaporizkyi Iron Ore Plant" declares the price on the FCA terms

As can be seen from the graph, the activation of scrap exports from Ukraine in the spring and at the end of 2016 was triggered by rising prices for iron ore and steel.

What are the countries to which Ukrainian raw materials are sold?

Practically, all the volume of scrap metal exported in 2016 was sailed to Turkey - to one of the main competitors of Ukrainian metallurgy in the international market. At the same time, the export of Ukrainian rolled metal in Turkey is subject to a 20 percent barrage duty.

Only 556 tons were exported to Moldova and 449 tons to Great Britain.

Export operations with scrap metal were issued through the UK, as well as offshore jurisdictions: Belize, Panama, Virgin and Seychelles.

How much have earned scrap exporters?

The total invoice value of scrap metal exported from Ukraine in 2016 amounted to UAH 1.23 billion. This is 2.5 billion UAH less than in 2015.

The average price per a ton of scrap metal, according to customs declarations, was $ 178 in 2016.

Extension of export duty on scrap

The scrap export market has always been in the shadows. The state budget of Ukraine received practically nothing from it, except for the duty, which until the last increase was 10 euro per ton.

At the same time, scrap metal is a strategically important raw material for metallurgists, who, along with agro-traders and food exporters, are the main suppliers of currency to the country. In 2016, Ukraine exported rolled metal by $ 5.93 billion.

According to the calculations of the association "Ukrmetallurgprom", the state receives 8-10 times more from a ton of metal sold abroad than from the export of a ton of scrap metal.

If the duty on exporting scrap metal in the amount of 30 euro / ton will not be prolonged, then Ukraine will in fact continue to finance the main competitors of Ukrainian metallurgy and lose currency proceeds.

As it is known, the volume of foreign exchange earnings from goods sold for export directly affects the stability of the hryvnia exchange rate and Ukraine's ability to fulfill its obligations.

So far, the Ministry of Economic Development and Trade does not plan to extend the law providing for an export duty of 30 euros per ton. But metallurgists insist on its extension for three years at least.

"It is needed to be done now: to consult with the scrap collecting association and the Ministry of Economic Development," says Alexander Kalenkov, the president of the profile association "Ukrmetallurgprom".


  • 16.01 Why scrap metal picking fell to historic low?
  • The key factors of the catastrophic decline in scrap collection are the depletion of readily available sources of raw materials.