Back to news 2015-07-15

Deficiency of scrap in the Ukrainian domestic market made worse by record exports

As Ukraine becomes further established as a global exporter, domestic product manufacturers have been feeling the lack of raw materials. The deficiency of scrap for domestic consumption in June was 100,000 tons, or 26% of the demand. During the same period, exports of scrap metal reached a record 230,000 tons.
According to the association "Metallurgprom" and estimations by Interpipe, the need for scrap amongst metallurgists was 386,000 tons. Actual shipments almost reached 286,000 tons.
The reason for this shortage of scrap metal is exports. The export of raw materials from the Ukraine in June, according to the State Fiscal Service, has reached a record high level of 230,000 tons, the highest monthly figure in the last 10 years. For comparison, the annual volume of Ukraine scrap exports in 2012 and 2013 was 400,000 tons and 300,000tons respectively.
The share of exports in total volume of scrap stocking reached 45% for the first time in a decade, leaving the domestic market with slightly over half of the collected raw material (286,000 tons). Thus, exports almost equaled domestic consumption, which is contrary to the document “Balance of scrap”, approved by the ministry. Thus, it fixes the ratio of export – 23% and of domestic consumption – 77% of the scrap stocking.
As a result, six months’ scrap deficiency amounted to 445,000 tons, or 21% of semi-annual needs. Export for period January-June reached 739,000 tons. The ratio of exports and domestic consumption is 31% and 69%, respectively. The vast majority of scrap from Ukraine is exported to Turkey.
“Interpipe is the largest exporter of pipes and wheels – the finished product with high added value. In the context of the loss of the Russian market, we are fighting for every ton of orders from Europe, America and Middle East. Compliance with delivery dates is a necessary condition for work on these markets. But due to the systematic shortage of raw materials, deadlines for production are disrupted and we end up losing customers.  This trend has a knock-on effect for the state, which will lose taxes, people and jobs. This damages the outlook for Ukraine, changing it from high-tech country into a raw appendage of metallurgists from other countries”, says Oleg Rozenberg, CEO of Interpipe.
Due to lack to scrap in June, idle time on Interpipe Steel amounted to eight days. Over the last six months, this idle time amounted to 38 days.
The economic cause for mass exports of Ukrainian metal is the higher price that metallurgists in Turkey can pay for raw materials. Due to the proximity to markets of finished products, favorable location of the mills against seaports, high prices for the finished product on the domestic market and other factors, they can pay more for scrap than the Ukrainian, European, Russian and Chinese metallurgists. Thereby they are “washing out” the raw material from these countries, where it is not protected.
Traditionally, the governments of “metallurgical” states tend to protect the scrap for domestic producers, applying quotas or raising taxes.
In the Ukraine, the relevant ministry puts the principles of deregulation over the interests of metallurgy – a fundamental sector of the economy, which gives jobs to 250,000 Ukrainians, pays billions in taxes and generates with related industries 40% of GDP. Now Turkish metallurgists are reliably provided with raw materials from Ukraine. Ukrainian manufacturers of finished products are on the verge of stopping. And the business of scrap export received mode of full aid from state, despite it is “one of the most of shadow and corruptive export positions” according to the Prime Minister of Ukraine.
With authority to regulate the export of metal scrap and with having the reasons for changes up to results of H1, the Ministry of Economic Development and Trade is inactive. The volume of export of scrap is determined by the order №381 “About the account balance of stocking and consumption of ferrous scrap”. The document contains a norm for review of the quota on export for H2, based on the results of the metallurgical industry in H1.

Interpipe is global producer of steel pipes and railway wheels. The company’s products are marketed in more than 80 countries around the world through a network of sales offices located in key markets of the CIS, the Middle East, North America, and Europe.
In 2014 the company’s enterprises produced around 850 thousand tons of pipe and wheel products. The volume paid taxes and fees by the Company in 2014 amounted to 1.124 billion USD.
Contact details for the mass media: 
Lucy Novak
Phone: +380 67 565 00 42

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