Scrap metal export ban will destroy the scrap industry, – industry association demands Zelensky’s response
2 June 12:38
The draft resolution of the Cabinet of Ministers of Ukraine “On Amendments to Annex 1 to the Resolution of the Cabinet of Ministers of Ukraine of 24.12.2024 No. 1481”, which effectively bans the export of scrap metal, has signs of official forgery. This is stated in an open letter to President of Ukraine Volodymyr Zelenskyy from the Ukrainian Association of Secondary Metals (UAVtormet), "Komersant Ukrainian" reports.
The Association noted that the explanatory note to the draft Resolution contains estimates and assumptions based solely on the biased conclusions of the Ukrmetallurgprom Association of Metallurgical Enterprises , which is an interested party and represents the interests of direct beneficiaries of the restriction/prohibition of ferrous scrap exports, i.e. Ukrainian metallurgical enterprises.
“This can be classified under Art. 190 and Art. 366 of the Criminal Code of Ukraine “Official forgery”, the open letter says.
UAVtormet is convinced that export opportunities are an incentive for fair and market-based pricing in the Ukrainian domestic market for ferrous scrap and waste.
Currently, the price imbalance between domestic market prices and export prices is already up to 80%, which prevents efficient sales of scrap, including that generated by state-owned enterprises (Ukrzaliznytsia, Naftogaz, USPA and others). The annual losses of such enterprises are already estimated at UAH 2-2.5 billion and will increase or, if the Resolution is adopted, make it impossible to sell scrap metal at all, UAVtormet emphasizes.
“The complete export ban envisaged by the draft Resolution of the Cabinet of Ministers of Ukraine will destroy the scrap industry, as key market principles of competition will be violated, and scrap processors will be deprived of the opportunity to work and earn money, as domestic prices are the limit of business profitability, and sometimes due to logistical difficulties and related costs of scrap supply, this type of activity becomes unprofitable,” the letter to the President says.
The association of scrap companies pointed to a number of negative consequences that may arise if the export of ferrous scrap is banned
- a decrease in foreign exchange earnings of EUR 10-15 million per month;
- reduction of approximately 4 thousand jobs in the scrap industry;
- reduced tax revenues to the state budget, including VAT, personal income tax, military duty, and income tax;
- reduction of revenues of state-owned enterprises JSC “Ukrzaliznytsia” and transportation companies due to reduced transportation and loading volumes;
- shortfall in revenues from the sale of ferrous scrap and waste by up to UAH 600 million per year by enterprises, including those with state ownership;
- additional tensions in relations with the EU when discussing the extension and expansion of the free trade area;
- inability to attract investment and technology to the industry, especially in such a sensitive area as the processing and utilization of destroyed military equipment and ammunition.
“Artificial restrictions on exports of ferrous scrap by some European institutions are seen by some European institutions as subsidizing the Ukrainian steel industry, which could lead to a wave of anti-dumping investigations and strict tariff/non-tariff regulation of imports from Ukraine. In other words, there may be cases of refusal of Ukrainian imports, as well as blocking of supplies similar to the “grain blockade”,” the open letter says.
UAVtormet is ready for an alternative solution that should satisfy the interests of the metallurgical and scrap industries as strategic for the Ukrainian industry. In particular, it is proposed to approve the annual “Balance of ferrous scrap production and consumption”. The Ministry of Strategic Industries of Ukraine should be responsible for its approval.
“This will become the basis for a balanced state decision, take into account the interests of the parties and promote market development. In addition, key representatives of our industry are ready to sign and implement the relevant Memorandum with metallurgical enterprises on the priority supply of their needs for ferrous scrap,” the letter from UAVtormet reads.
In turn, experts in the scrap industry commented on the possible cancellation of scrap exports.
Mykola Klymovych, Business Development Director at Mirten LLC, noted that exports to the EU are clearly regulated and are carried out in 7 EU countries: Poland, Hungary, Bulgaria, Slovakia, Portugal, Greece, and Italy. Recycled materials are supplied to more than 20 EU steel mills.
He explained that every Ukrainian exporting company must obtain a EUR.1 certificate of conformity to export to the EU countries. This document is issued subject to clear requirements:
- only for the confirmed country of origin of the scrap;
- the certificate confirms the status of the exporting company as a producer of raw materials;
- the certificate confirms that the exporter has the appropriate equipment to carry out professional activities;
- the certificate is subject to the relevant conclusions of the Ministry of Ecology of Ukraine.
In his opinion, the export ban is a “red director-style” breaking of all existing mechanisms and rules. The main reasons for the export ban, according to the expert, are, firstly, the desire to buy raw materials for a song, and secondly, to make excessive profits.
“Steel companies don’t care what happens to our market, as long as they can make excessive profits. The price they impose for 1 ton of scrap is up to €200 per ton, which is €100 lower than the EU price. They believe that by banning exports, they will be able to buy recyclables 70-80% cheaper. However, this price is beyond the profitability of scrap collectors. Their desire to buy scrap for a song is understandable, but the paradox is that they are unable to swallow all the accumulated scrap. Of what we are able to collect, the needs of steel mills are only 20-25%. That is, the export of scrap metal does not prevent them from working,” the expert said.
Konstantin Bass, Chairman of the Supervisory Board of the UKRMET Group of Companies, pointed out that the export ban would put the scrap industry on hold, and that steel mills could only “hold out” for 3-4 months due to the mostly accumulated scrap. He noted that steel companies can only provide themselves with 20-25% of scrap on their own. That is, as the expert explained, their procurement capabilities are extremely limited. In addition, steel mills periodically experience various kinds of force majeure, such as equipment required for unloading/loading scrap.
“Recently, one of Interpipe Group’s enterprises faced a situation where the management simply stopped unloading scrap for an indefinite period without any explanation. In my opinion, there is no reason to believe that steelmakers will cope with the sea of scrap without us,” he said.
Konstantin Bass believes that the ban on exports of ferrous scrap is too biased and called it a “war for market share.”
UAVtormet asks the President of Ukraine, as the guarantor of the Constitution of Ukraine, to intervene in the situation.
