Basic facts about the scrap metal market of Ukraine in an interview with Vladimir Bubley, president of UAVtorment for gmk.center:Profitability of scrap procurement business is reduced.
Estimated figures for the procurement of steel scrap in 2018 amounted to 4.22 million tons compared to 4.34 million tons a year earlier (a decrease of 2.7%). It should be noted that in Ukraine there are practically no sources of easily accessible scrap (except for domestic). The development of existing sources of scrap requires additional material and labor costs, which are not always cost-effective and are highly dependent on the market price situation, export opportunities and legislative decisions.
Domestic deliveries: the eternal conflict of interest.
The reasons for the conflict of interest between scrap companies and steel mills are trivial - unfair pricing and selective payment discipline on the part of consumers. It so happened historically that scrap metal suppliers formed a pricing policy, focusing on the profitability of the billet, market demand and export quotes.
At the same time, enterprises of the “big” metallurgy form purchase prices, often based on their interests, since the share of scrap metal in the cost structure of steel is significant and the industry average is 12-15% (with the exception of electric steel production, where scrap is the main raw material) .
In addition, metallurgists constantly talk about poor supply of “strategic” raw materials and even about its shortage in the market. However, the mechanism for determining the needs of the plant for scrap is opaque and, in fact, based on the expectations of steel production, and not on actual needs.
Nevertheless, in 2018, 3.34 million tons of scrap metal was supplied to Ukrainian metallurgical enterprises, which is 2.5% higher than the previous year. At the same time, the stated needs of enterprises in 2018 were met by 99.0%. As of the beginning of the current year, the scrap metal reserves at the plants exceeded 160 thousand tons (at the beginning of 2018 the scrap stocks at the enterprises were about 100 thousand tons).
So what is the shortage of raw materials in question?
Scrap Export.
In 2018, about 327.5 thousand tons of scrap metal was exported from Ukraine, which is 33.0% lower than the same indicator for the previous 2017. The main countries importing Ukrainian raw materials were Moldova and Turkey. The rapid reduction in external shipments of scrap metal is due to the introduction of an export tax of 42 euro / ton, which made this activity unprofitable.
In addition, the possibility of selling scrap metal to foreign markets has always been a significant incentive for the modernization of procurement and processing facilities and business expansion.
In January 2019, another populist bill was registered to raise the export duty to 58 euro / t, which would generally stop export deliveries. This will immediately lead to a decrease in purchase prices by 20-25%, will make scrap harvesting unprofitable and, as a result, the volume of scrap supplies to metallurgists will fall.
Import as an alternative.
The theoretical possibility of providing Ukrainian metallurgists with imported scrap metal has always been. A few years ago, Kazakhstan and Russian scrap metal, often more expensive due to the large transport arm, was actively supplied to Ukraine, but exceeded Ukrainian raw materials in quality characteristics.
In recent years, the situation has changed. At the end of 2018, about 42.6 thousand tons of scrap metal were imported to Ukraine (an increase of 68.4% compared to last year). The structure of imports was dominated by scrap alloyed steels or return scrap metal.
Fair pricing is the basis of the market.
Scrap pricing is one of the key factors for a healthy market. Procurement enterprises are guided by the quotes of the European or Turkish market, while metallurgical plants form procurement prices according to their own methods, often based on their commercial interests. There are frequent facts of lowering prices for scrap metal that has already been supplied, artificially increasing its blockage and the use of other “optimization methods”.
There were cases when purchase price levels changed three times during the week! Such price “swings” bring havoc to the market and do not allow to plan procurement and timely shipment.
For transparent and fair pricing, "UAVtormet" proposed a modern pricing mechanism, which showed its effectiveness - the "Price Parity of the Ukrainian Scrap Market".
