FOCUS: Russian steel export tax could create billet boom in Asia

The likely introduction of an export tax on Russian semi-finished steel products could cause tight supplies and a jump in prices for steel billet in Asia over the second half of 2021, sources told Fastmarkets on Friday June 25.

Russia’s economy ministry proposed on Thursday that the government impose temporary export duties on ferrous metals sold outside the Eurasian Economic Union (EAEU), to be levied between August 1 and December 31, 2021.

Exports of steel billet and slab produced in Russia will be subject to the duties if the tax proposal goes ahead, sources said. The base duty rate across all products covered by the duties will be 15%, but with a specific minimum tariff for each metal, according to documents seen by Fastmarkets.

Therefore, all Russian steel products for export outside of the EAEU with a bill of lading dated August 1 or later would be subject to the tax, sources said.

Russia is a major exporter of steel billet, exporting millions of tonnes each year to Asian markets such as the Philippines, Indonesia and China.

How the tax might work
Sources were divided over which counterparty would absorb the duty - the Russian producer or the consumer.

“I think some mills cannot afford to pay the tax, so they will either stop [exporting] or prices must go up. But it might be that the duties will be adjusted,” a Russian steelmaker source said.

“I do not think there will be any changes in steel export volumes besides billet. For other products, it is impossible. There might be some changes in production planning, but exports will continue,” a second Russian steelmaker said.

“The expenses connected with the export tax will be [absorbed by] the seller, by default,” the source added.

Further concern has spread over the market relating to steel billet cargoes that have recently been booked to markets such as the Philippines for August shipment.

“There are billet orders booked for delivery in August and presumably they will be affected. Let’s see if customers agree to foot the bill,” a billet trading source said.

“With billet, producers may be able to expedite their production to beat the August 1 deadline in some cases, but other materials such as hot-rolled coil need a longer period of time to be produced,” a South Asian trader said.

“There will be some defaults, I think, or renegotiations. Overall, I think this is bullish for billet,” a Singaporean trader said.

Knock-on for Asian markets
Market participants in Asia told Fastmarkets on Friday that more expensive billet supply from Russia would almost certainly raise prices for billet from competitor countries.

“If a country such as Russia is taken out of the equation, other sellers will take advantage,” a Philippines billet trader said.

Sources expected billet buyers in Asia to scramble for cargoes from other origins, especially Vietnam, Indonesia, Malaysia and the Middle East, if they were not able to secure Russian billet.

“Spot prices should increase, because there will probably be a big rush to purchase billet soon,” the trader said.

A third seller source in Russia said that he was already hearing more inquiries for steel billet on Friday, one day after the announcement was made.

There was particular concern about any reduction of Russian supply in the Philippines market due to the ability of producers to make a wide range of dimensions, such as 100mm and 125mm square billets, and chemical compositions such as modified, high-manganese 5sp.

“The Philippines will need to pay extra to get such chemistry now. India will not give in to this request, but probably Vietnam can accept such a modified chemical composition,” the Philippines trader said.

The expected increase in billet prices across Asia was also likely to be a boon for steel scrap, a Vietnamese trader told Fastmarkets on Friday.

Vietnamese steel mills typically produce billet using steel scrap. They import large quantities of Japanese, Hong Kong, United States and Southeast Asia-origin scrap to feed billet production.

But there was a limited effect on the steel billet markets in Manila on Friday, with Fastmarkets’ daily price assessment for steel billet, import, cfr Manila, based on 120-150mm standard BF and electric-arc furnace (EAF) 5sp billet, assessed at $675-680 per tonne, widening downward day on day by $5 per tonne from $680 per tonne, and down by $15-20 per tonne week on week from $690-700 per tonne.

Prices for billet in the cfr Manila market have been limited this week by low bid prices and a lack of demand in the Chinese market, prompting a deluge of offers to Southeast Asian markets, sources said.

Different story for slab
While there were more alternative suppliers of billet in the international market, this was not the case for steel slab.

Russia accounts for around 25% of global slab supply, and it was likely that buyers would have to continue purchasing slab from Russia despite the 15% export tax.

“It is likely that slab prices will increase after August 1, especially when slab sellers around the world raise their offers to match Russian offers,” the first Russian seller source said.

Slab buyers in Asia typically have limited options if they choose not to purchase Iranian slab. These include Russian, Indonesian, Malaysian or Vietnamese material.

Japanese and South Korean slab was offered to Asia very irregularly.

Vlada Novokreshchenova in Dnipro contributed to this report.

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