The Russian dilemma

The Russian recycling industry has plenty of scrap as the country generates more than 50 million metric tons (mt) every year and has more than 10,000 licensed companies operating in this segment.

Still, Russia has witnessed a 32 percent decrease in domestic ferrous scrap consumption, a 71 percent decline in exports outside the Eurasian Economic Union (EAEU) and a 34 percent drop in domestic ferrous collections since 2021.

This negative development can be attributed to government quotas and the lack of demand in the domestic market, which has led to a significant volume of uncollected and unprocessed scrap in Russia.

Export regulation and domestic demand

The Russian government intends to regulate the ferrous scrap market with export quotas and duties, believing these restrictions will ensure enough supply for local steelmakers and regulate domestic prices.

In the latest notification, Russian officials pegged the ferrous scrap quota at 550,000 mt for exports outside the EAEU for July through December. This is lower than the quota of 600,000 mt from January to June.

Export duty remains at 5 percent but no lower than 15 euros ($16.40) per metric ton. However, a duty of 290 euros ($316.99) per metric ton will be applied for excess quota tonnages.

“The decision is aimed to provide strategic raw materials to domestic steelmakers,” according to a post on the Russian government website.

However, Russian mills’ demand is falling as they increasingly are choosing alternative pig iron and hot-briquetted iron as raw materials instead of ferrous scrap. The country is following the path of Indian steelmakers, which are switching to higher consumption of direct-reduced iron and sponge iron instead of ferrous scrap because of low steel product prices.

These developments have put ferrous scrap prices in Russia under pressure, having fallen to a minimum since the beginning of the year.

It also has squeezed the margins for metal recyclers in the country. The restrictions in the latest round of quotas have made recyclers more dependent on domestic demand. However, domestic consumption fell to 8.8 million mt in the first half of this year, down 16 percent from 10.5 million mt in January through June of 2023.

Transportation costs also have continued to rise. For example, railway tariffs rose by 3.7 percent in 2021, then by 18.6 percent and 10.75 percent in 2022 and 2023, respectively, before growing again by 11 percent this year. The cost of trucking also has increased with higher fuel prices, which have risen by an average of 40 percent in Russia, and drivers’ salaries, which grew in excess of 50 percent because of competition for personnel from other industries, such as agriculture.

Russia’s ferrous scrap collection also has suffered, dropping by nearly 14 percent annually to 9.74 million mt in the first half of this year, and further prospects are unclear.

Additionally, ferrous scrap exports from Russia to countries outside of the EAEU fell by 71 percent to 460,000 mt from January through June of this year compared with the 1.591 million mt the country exported in 2021 before the quota regime was introduced.

Russia was a major supplier to Turkey several years ago. However, the country shipped only between 250,000 mt and 300,000 mt in the first half of this year, according to data from Davis Index.

Saint Petersburg is the most export-dependent part of Russia. Ferrous scrap collections in this region are expected to total about 790,000 mt this year—a major decrease from the 2.5 million mt collected in 2021. At that time, 2 million mt of ferrous scrap were exported, and 240,000 mt and 150,000 mt were supplied to Russian mills by railways and roads, respectively. Annual domestic consumption by the three steelmakers in Saint Petersburg amounted to 120,000 mt.

The Russian scrap industry will continue to be weighed down and significant volumes of ferrous scrap will remain uncollected and unprocessed in the country unless its domestic demand improves and higher scrap volumes are allowed under the export quotas.

Olga Yakymchuk, senior analyst at Davis Index, covers the ferrous scrap market for Turkey and Commonwealth of Independent States. Email her at olga.yakymchuk@davisindex.com.