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Russia imposes export duty taxes on ferrous, major base metals from Aug. 1

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Russia imposes export duty taxes on ferrous, major base metals from Aug. 1

Highlights

Duties to run through end of 2021

Aimed at cooling metals price increases

Government sees metals profits as excessive

London — Russian Prime Minister Mikhail Mishustin has signed off on a decree that will introduce export duties on ferrous and major base metals starting Aug. 1. The duties, ranging from $54/mt to $2,321/mt, will be in effect through the end of December, according to the decree, which was seen by S&P Global Platts.

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Metal companies denounced the measure, signed June 26, as discriminatory and purely fiscal, diverting $2.3 billion from them to the state budget.

The new duties system will take 15% as a base and involve a metal-specific rate, and will apply to exports of some of the steelmaking raw materials, semi-finished and rolled-steel products and primary forms of copper, nickel and aluminum. This will add to the state budget Rb113-114 billion ($1.6 billion) from export duties on ferrous metals and Rb50 billion ($700 million) from duties on non-ferrous metals, according to Russian Ministry of Economic Development.

For iron ore pellets and other ferrous products with indicative prices of up to $400/mt, the ministry added a minimum tax of $54/mt; for hot-rolled flat products and rebar a minimum $115/mt; for cold-rolled coil, wire and other steel products priced up to $1,300/mt a minimum of $133/mt; and for stainless steels and ferroalloys, $150/mt.

For nonferrous metals, the minimum metal-specific duty component will be $1,226/mt for copper, $2,321/mt for nickel and $254/mt for aluminum.

The rates are calculated on prices over the first five months of 2021.

Rising metals prices

The duties are meant to cool domestic metal prices, after a previous measure -- a hike, effective from end of January till end of July 2021, in Russia's export duty on ferrous scrap to Eur45/mt, up from Eur5/mt -- did not stop metals price inflation.

Over the first five months of 2021, export prices for Russia's ferrous metals increased by 30%, and for nonferrous metals by 50% year on year jeopardizing construction projects financed through public funds, according to the economic development ministry.

Beyond the concern with rising domestic metals prices, the move is also an attempt to target metals companies' recent profits, which the government sees as excessive. Over the January-March quarter, their combined profit amounted to Rb570 billion ($7.9 billion), three and a half times higher than the average for the corresponding quarters of 2017, 2018 and 2019. The economic ministry forecast the metals industry's profit for full-year 2021 at Rb2.1-Rb2.3 trillion.

Focus faulted

"The government's incentive is clear -- social justice in the form of larger contributions to the public budget from highly profitable companies, but the tools should have been more fine-tuned," Vladimir Potanin, president and chairman of the board of directors and majority shareholder of Nornickel, told journalists.

Russia's major nickel, copper and PGMs producer will lose $500 million in taxes on copper and nickel, according to Potanin.

Alexey Mordashov, chairman of the board at mining and steelmaking company Severstal and its majority shareholder, said his company understands the government's concerns about the rise in metals prices, and yet the steel magnate expressed hope that the measures will not complicate Russian metals access to world markets, which already have serious restrictions in place for Russian metallurgical companies.

Another Russian steelmaking major, NLMK, called the decision to impose export limiting duties in one industry discriminatory and purely fiscal.

In a statement sent to S&P Global Platts, NLMK said the 15% export duties will affect the entire range of metal products, including those for which there is no market in Russia (semi-finished products and pig iron). Imposing the duty on these products will neither increase their supplies to the Russian market nor reduce prices for domestic consumers, the company added.

It will primarily affect electrometallurgy, which operates on expensive scrap and may lead to cuts in exports and production of billets, given that Russian consumption of such products is absent or insufficient, NLMK said.

Effects of price corrections

Fixing the duty at no lower than a certain minimum regardless of market prices does not take into account expected price corrections. If hot rolled coil prices fall to the average of the past few years, the effective duty rate will then equate to 25% of the price, the level will be export-prohibitive even for efficient producers, NLMK said.

The duties will shrink the presence of Russian metallurgists in world markets and the replacement of Russian products with metals from other exporting countries, such as Ukraine and Turkey, NLMK said.

It will be difficult for Russian metal producers to recover their positions, especially given that the number of available markets has already significantly decreased in recent years as a result of multiple trade barriers, NLMK added.