The Ministry of Economic Development blocked the export of scrap metal

Photo: Iryna Gorbaseva

Since June 2014 the Ministry of Economic Development and Trade has not been registering contracts for the export of scrap metal from Ukraine. Scrap collectors claim they cannot get a clear answer from the authorities as to the reasons why export was suspended. The confusion was to the benefit of Ukrainian steelmakers for whom raw materials are now much cheaper than for their foreign competitors.

Growing to fall

The freezing of scrap removal after a record growth this year dealt a serious blow to exporters. “In January – August 2014 scrap exports totaled 636,000 t, while over the same period last year only 68,000 t were exported,” said analyst and head of the Marketing Department at Ukrpromzovnishekspertyza Yuriy Dobrovolskiy.

He attributed the growth of exports by almost 10-fold to the fact that up until June 2013 there have not been any exports at all, because the Ministry of Economic Development and Trade did not issue any quotas. Last June the ministry’s commission allocated an export quota of 1.12 mn t of scrap metal for the year and it was assumed that this June it will convene again to allocate a new quota for half a year or a quarter of the year. “But the commission has not convened as of October 2,” said Dobrovolskiy. The expert says since June 2014 the quotas have not been in effect and exports rapidly fallen. Operators exported scrap only under previously concluded contracts. As a result, in June they exported 152,000 t, in July – 94,000 t, in August – a mere 50,000 t.

Waiting for an answer

General Director of Ukrmetko Valentyn Makarenko, who is also a member of the management of the Ukrainian Association of Secondary Metals (UAVtormet), told Capital that according to the law only the Cabinet has the right to limit the export of scrap metal, but in truth the Ministry of Economic Development and Trade is fulfilling this task by not registering export contracts.

The Ministry of Economic Development and Trade refers to the Ministry of Industrial Policy, which allegedly did not approve the balance of metal production in Ukraine and the needs of Ukrainian steelmakers for raw materials. The Ministry of Industrial Policy says the balance has already been drawn up and submitted to the Ministry of Economic Development and Trade. “There is no official in the Ministry of Economic Development and Trade that will assume the responsibility to perform these duties,” said Makarenko. He adds that since July UAVtormet has repeatedly appealed to the president, the premier, the prosecutor general and the NBU, but so far it has not seen any results. At the same time, he did not rule out that the cessation of exports was lobbied by metallurgists attempting to achieve lower prices for recyclable materials.

On July 16, 2014, Capital wrote that steelmakers are trying to limit scrap exports: managers of Interpipe addressed such a request to the Ministry of Economic Development and Trade proposing to limit the foreign shipments of scrap metal to the maximum level of 11.2% of the domestic market.

Make money out of chaos

The demand of the domestic market for scrap metal decreased due to the shutdown of certain steel mills in eastern Ukraine and collectors are currently working at 50% capacity. However, the prices have not fallen, said Dobrovolskiy, because there are certain complications with the export or collection of scrap metal in the Donetsk and Luhansk oblasts given the armed hostilities. Previously, these two oblasts accounted for approximately 20% of the collection of scrap metal in the country. “There is information that in the territories controlled by the terrorists scrap metal is being collected and exported to Russia,” said the expert.

Dobrovolsky adds that at the moment iron and steel companies are offering UAH 3,000 for 1 t of scrap metal. Scrap metal collectors in the regions consider the price to be way too low and demand that it be raised. “There is a struggle, but I believe iron and steel works will raise the prices, as they need to accumulate stocks for the winter. At the current price, they will not be able to provide for the procurement of stocks,” said the analyst.

Makarenko said that according to the January forecast for the production of metal, in 2014 Ukrainian works need a total of 4.9 mn t of scrap metal and without prejudice to metal production could export 510,000 t of it. However, due to the shutdown of a number of iron and steel works on the backdrop of the events in the eastern regions of the country, the volume of export of scrap metal could be easily increased to 1 – 1.5 mn t.

Scrap metal collectors would be glad to do that because the price of recycled iron on foreign markets, which are currently closed for them, is US $310 per t. “Compared to Turkish iron and steel works, our companies make a ton of Ukrainian scrap metal for US $70–90 cheaper,” calculated Makarenko. He is convinced that Ukrainian steel producers will not increase the purchase prices of scrap metal.

Moreover, the prices of scrap metal on the world market are falling, assured Dobrovolsky. For example, last month quotations in Turkey plunged by US $20 per t. Based on last year’s results, Ukrainian metallurgical enterprises produced 32.7 mn t of steel, but this year, at best, they will reach the level of 27 – 28 mn tons, said Dobrovolskiy. Therefore, steelworkers are safeguarded from the shortage of scrap metals until the end of the year. Industry experts predict that in 2014 Ukraine will stock up approximately 5 mn t of scrap metal. In 2013, this figure was 5.5 mn t.