Russian plan for exchange scrap metal trading halted by coronavirus

London — The Russian plan to shift trading of scrap metal for export onto an exchange has been put on hold indefinitely due to the lack of interest in pursuing such a labor-intensive move during the coronavirus pandemic.

The procurement of export-bound ferrous and non-ferrous scrap was supposed to become possible only on an exchange from April, with all transactions for state-owned scrap -- both export and domestic -- set to be exchange-traded too.

The move to distribute the 4 million mt a year of ferrous scrap Russia normally sells abroad via an exchange was expected to make Russian scrap more expensive, and potentially scarcer, due to the fees associated with the change. However, domestic and global events since the start of 2020 have meant the move being put on ice.

Market sources pointed to several reasons why the idea is no longer popular and is unlikely to be implemented in the very near future.

Firstly, the Russian government reshuffle in January led to the departure of industry and trade ministry officials who were promoting the change.

Secondly, the coronavirus pandemic, which hit Russia in mid-March, radically changed priorities, with reorganizing scrap trading moving to the bottom of the government's "to do" list.

Thirdly, the collapse in the oil price in late February and March made the export of other commodities which earned Russia hard currency a priority because of the budget's dependence on commodity revenues. Any move to limit them through exchange trading as in the case of scrap would not have been welcome.

Steel companies would always be interested in having in place some sort of limit on scrap exports, and distribution via an exchange could still be regarded as one of them, director at Moscow-based scrap sector consultancy Istok, Oleg Maslennikov, said.

Mills could easily counter the argument that scrap exports helped plug the hole in the budget caused by the oil price collapse by saying exports of billet, which fetches $100/mt more than scrap, would bring in even more revenues and asking the government to maintain the availability of scrap for domestic billet production, he said.

Maslennikov did not entirely rule out scrap trade reform being back on the agenda. "It may become relevant again when production and demand in most steel making and consuming countries recovers, when their governments inject liquidity to revive their economies and end-user industries," he said, but conceded this was unlikely to happen soon.

"Establishing exchange trading in scrap requires amendments to quite a few laws. It's a major legislative task that has little chance of being undertaken when some of the staff at the ministries involved are either down with the coronavirus or in self-isolation or have their hands full with more pressing issues," he added.

Slump in demand changes agenda

In addition, the pandemic caused steel and scrap demand to slump well below the level necessitating measures to retain raw materials for domestic use. Several mills have even suspended scrap procurement for a few days, and the scrap deficit is no longer on the steel industry's agenda.

For now, Russian scrap exports remain unregulated and their volume depends on fluctuations in supply and demand.

In the first quarter Russian scrap shipments to Turkey, its scrap main export destination, decreased year on year, largely due to lower steel production in Turkey as well as intensified competition as US and European suppliers ramped up exports, taking away volumes from their domestic markets where the pandemic had already dented demand for scrap.

However, the trend reversed in April when the pandemic spread to the US and EU, while Russian collection was not affected as much because of fewer restrictions on businesses.

Exports of Russian ferrous scrap from Rostov and Volga river ports to Turkey leaped 65% on the month to 35,370 mt in April.

Going forward, scrap trade will depend on the pace of steelmaking's recovery in Turkey and elsewhere because the scrap procurement price would need to be higher than the current $240/mt for exports to pick up. In Q1 2019, the average CIF price of ferrous scrap sold to Turkey was $310/mt.