Russian ministry proposes export duties on flat steel and iron ore

Friday, 28 Jan 2011
It is reported that Russian deputy minister of economic development Mr Andrey Klepach has proposed a 10% export duty for flat rolled steel and iron ore. The move is focused on increasing domestic supply and preventing price rises.
As per reports, the ministry has offered to introduce two export tax schemes proposing 10% export duties for flat rolled steel and 30% for iron ore or an alternative including a progressive tax on steel with lower rates and increasing the mining tax on iron ore from the current 4.8% to 8.8% instead of the export duty.

Mr Marat Gabitov with UniCredit Securities said that a new tax regime could cut steel producers investment plans. He said “We see the news as negative for Severstal and MMK, as the two companies are Russia’s biggest exporters of flat rolled steel, with 45% and 35% shares of exports, respectively. Our rough estimates suggest that, all other things equal, the introduce 10% export duty on steel would result in a 10% to 15% cut to EBITDA for both companies. Mechel could suffer from the export duty on iron ore, as it ships up to 4 million tonnes per year to China. Although, the negative effect may not be significant. In any case, we note that the steel lobby in Russia is quite strong and the introduction of additional duties could result in the scaling back local steelmakers’ investment plans, and there fore we believe the chances that such duties will ultimately be introduced may be quite low.”

Mr Mikhail Pak analyst at IC Aton said that strong pressure from auto producers who are susceptible to sharp price rises also lays behind the proposal. He said “Auto producers accused steel plants for their plans to increase prices for flat rolled steel for 40% which may lead to higher auto industry expenditures and inevitably affect retail car prices. AutoVaz flat rolled steel stocks are almost finished and production is on the edge of material shortage. Export taxes were not applicable to any steel raw material earlier except Non ferrous metals. I think government is trying to equalize both sectors to resolve the dispute and prevent retail price soaring.”

Mr Airat Khalikov metallurgy sector analyst at Veles Capital believes the introduction of a new tax regime is a government response to pricing issues on the domestic market. He said “The decision to introduce export tax regime on iron ore and flat rolled steel major steel plants output products, was driven by auto industry complains and inappropriate price strategy on the local market. So to say Steel giants became too greedy spurred by recent foreign market demand growth and less profits on the local market. With strict government control steel producers forced to focus on local supply offering low prices comparing to export prices.”
(Sourced from rt.com)