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Russia does not plan to apply elevated export duty on metals in 2022: official

Highlights

Cooling of market eliminates need, official says

Growth of scrap exporting seen as curtailed

Sources see rise in mineral extraction tax as likely

Russia's 15% tax on ferrous and major base metals exports for Aug. 1- Dec. 31 will not be rolled over to 2022 in light of declining prices, Victor Evtukhov, Russia's Industry and Trade deputy minister, told journalists on the sidelines of a panel discussion held by Metalloinvest.

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The 15% tax was set as a base, with Russia also enacting fixed metal-specific minimal tariffs like $115-$150/mt tax charged for hot briquetted and direct reduced iron products and steel, $254/mt for aluminum, $1,226/mt for copper and $2,321/mt for nickel.

There are no grounds for extending the export duties on metals to 2022 as the market is cooling down, the deputy minister said Aug. 30.

Evtukhov observed that metal prices have been declining, with the exception of steel scrap, for which domestic and external demand remains elevated.

Scrap export duty increase

By increasing the country's steel scrap export duty -- this has gone up to Eur70 a metric ton or 5%, whichever is greater, in late July, from Eur45/mt, or 5%, previously -- Russia has managed to stop the growth of this steelmaking raw material export, according to Evtukhov.

That said, in H1 2021, exports to Turkey, the major export market for Russian scrap, climbed 15% on the year to 1.08 million mt, the Turkish Statistical Institute reported.

Evtukhov said the ministry does not see grounds for a complete ban on the export of scrap, but if it encounters a deficit and prices go up, this might be considered. He said the country had experience limiting exports through a quota system. He said that if the price grows and scrap runs short, a temporary ban could be put in place for some period.

Survey of investors

Industry sources believe the government will replace the 15% export duty with an increase in mineral extraction tax, or MET.

Just under a month ago, President Vladimir Putin said Russia would increase the MET for the metallurgical industry starting in January. The magnitude of the tax hike has not been revealed, but a local press report indicated a potential tripling of current tax rates, with a Rb100 billion ($1.36 billion) gain being discussed.

Roughly half of the institutional and retail investors surveyed by Moscow-based BCS Investment Group said they believed the overall taxation burden on metals and mining companies in Russia would rise next year. BCS analysts shared the survey results with Platts.

The potential Rb100 billion in additional MET would represent only 2.5% of this year's EBITDA of the Russian mining and metals sector's major public companies, BCS said, estimating the sector's combined annualized 2021 EBITDA at $55 billion versus the $24 billion average in the preceding five years.

Link to commodity prices urged

The investment company emphasized the importance of linking the discussed MET scheme to commodity prices, as the latter are likely to decline to normalized levels within a year or so.

"Demand will calm down, travel will be more available, and commodity supply responds with higher production," the BCS analysts noted. "We strongly believe the current peaking [metals companies'] earnings should not be indicative of future ones and, if the additional taxation is introduced, it is better to be progressive to make sure the additional burden is gone should metal prices normalize."

The last time Russia revised the MET rate upward for ferrous and non-ferrous metal ores -- skipping metallurgical coal -- was in January 2021, when the levy went up by three and a half times. The move was estimated to bring an additional Rb90 billion to the state budget.