Andrei Karunos

R

ussia is one of the largest suppliers of iron-and-steel scrap. By some estimates, the country ships about 7 million tons of it annually. It is quite understandable why procurers and those, who do scrap processing, are interested in world market: last year alone prices for main kinds of scrap metal increased 2 or even 2.5 times and came close to $180 a ton, while, according to the industrial group MAIP, they are twice as low in the domestic market. But, at the same time, Russian steelmakers have been experiencing the growing lack of secondary raw materials. At the end of March leaders of the country’s major steel companies appealed to the Russian government again proposing to raise the export duty on scrap from 15% to 30%.
Scrap metal is considered Russia’s strategic raw materials. During his visit to France last February president Vladimir Putin reminded of it once more.

P  R  O  F  I  L  E
Serafim Afonin The president of the Russia’s Union of Metal Product Exporters. Graduated from the Moscow State Institute of Steel & Alloys. Professional steelmaker. Worked at the Lipetsk Iron & Steel Works (NLMK). Starting as an apprentice became the integrated mill’s chief steelmaker. From 1978 was in the public service. Worked at the USSR Ministry of Iron-and-Steel Industry, Ministry of Metallurgy, Ministry of Industry of the Russian Federation. Was the chairman of the Russian Committee on Metallurgy. At present, is the chairman of the Coordinating Council of the Metallurgical Complex with the Russian Ministry of Industry, deputy chairman of the Trade and Economic Council with the Ministry of economy, chairman of the Committee on Industrial Policy of Russia’s National Economic Council. A member of the Russian Engineering Academy.

In order to better understand the situation, Serafim Afonin, the president of Russia’s Union of Metal Product Exporters, proposes to consider the structure of the world steelmaking production, which in the last ten years underwent serious changes. In some countries the share of steel melted in electric furnaces has already reached 50%. As Afonin says, scrap metal started to play a special role, the more so as it is undoubtedly more preferable than iron-ore raw materials from the economic, technological and ecological point of view. It is a basic resource for mills with a short metallurgical cycle, where an electric furnace is the principal steelmaking unit. There are similar mills built in Europe and that led to the increased demand for scrap.
Before the economic reforms started in Russia, all activity of picking scrap and iron-and-steel scrap was centralized. The national system Vtorchermet picked about 30 million tons of scrap a year. In the past decade the quantity of scrap metal in Russia decreased by approximately 10 million tons. In Serafim Afonin’s opinion, the reasons are obvious: the crisis in the metal-working industry, reduction of waste in the metallurgy itself because of transferring to the steel continuous casting technology and declining volumes of production as a whole.
Along with this process there was another one that led to formation of a powerful system of shipping secondary raw materials for export. The impact of these factors was that the demand for scrap on its Russian market was steadily exceeding the supply. Prices grew up significantly. But since they are still lower than those on the world market, export shipments of scrap today are more profitable.
The desire of Russian steelmakers to restrict export of raw materials can be easily explained, says Afonin. They would like to raise the volume of their supply on the domestic market and this way to achieve the decrease of prices. But, first, one should not forget interests of those, who pick scrap. Second, no one could imagine turning at once millions of tons of scrap back to the domestic market: the market would simply collapse.
At present, Russia makes no more than 60 million tons of steel a year and no sharp increase in its production is expected. Steel companies, of course, would not mind to have a little more scrap at home for the sake of raising the technological stability. The country’s mills exhausted the so-called winter reserve and today’s deficit has a seasonal nature. But to suppress the economic interest in picking scrap for this reason would be an unforgivable mistake, believes Serafim Afonin.
There is also a fiscal component of this problem. "It is important to determine an optimal amount of export duty so as its imposition would not lead to reducing collection of funds for the state budget", says the president of exporters’ Union. He declines to make predictions as to what decision the government will take in response to the request of steelmakers. In Afonin’s opinion, today a 15% duty (but no less than 15 euros a ton) is sufficient. But persisting requests by European producers to cancel the duty completely in exchange for a 12% increase in quotas would mean an unequal and unfair deal, Afonin thinks.

One of the Vtorchermet subdivisions near Moscow

Interests of European steelmakers are understandable. They would like to be getting scrap metal from Russia in those volumes that they need. Serafim Afonin reminds: in the agreement on trade of steel products with countries of EU the European side initiated a provision stipulating that in case of lifting duties on exporting scrap metal, Russia will get additional quotas on export shipments of its metal products.
In a situation, when a lot of restrictions on Russian steel products are in effect on national markets of other countries and, above all, of EU, demands to open up the Russian market of scrap looks, at least, strange. "Why marketing such an important component of metal as scrap should be free?", asks the president of the exporters’ Union. "If an access for our steel is limited, then why we should open our borders to scrap? This is a strategic resource for us as well", he says.
"If there is a question of free trade in scrap metal, let us trade steel freely as well!", Afonin exclaims. In his opinion, then, Russian steelmakers could get more profit from selling steel and buy scrap metal for world prices on equal terms with West European competitors.
How this question of scrap duties can be settled after Russia’s accession in WTO? "In this case all previous restrictions, as is known, become invalid. Market mechanisms will come into force", Afonin points out. But he reminds that there still will be a possibility to use national laws for protecting the country’s interests. As is known, this is the way the U.S. acts, although other participants of the international trade doubt the propriety of their actions.
In 2002 the volumes of Russian steel export shipments were approximately equal to those of 2001 as provided for by the agreement with EU. And Russian producers practically exhausted their limited possibilities in this direction by shipping 1 126,000 tons of steel to the EU market.
The trade relations with the U.S. happened to be more complicated. In this case export quotas were used by no more than 30%. It was not possible to exceed this level because of protective measure put in effect by president Bush under provision 201 of the 1974 Law on the U.S. trade as well as price restrictions.
When answering questions from Eurasian Metals, the president of the exporters’ Union also expressed an opinion on prospects of the Russian metal product export. "To offer products of higher technology to the world market corresponds to our interests", says Serafim Afonin. "But it is more profitable for importers to buy our products of the first process stage, for example, billets, and re-roll them at their own mills", he adds.
Not only steelmakers in Europe but also the Asian ones moved this way. In Asia rolling production facilities are being set up on a mass scale and they do not even melt steel.
"It is like buying a finished carcasses instead of cattle in the agrarian sector and immediately start making sausage. There is no need to maintain this whole complicated, power-consuming and ecologically defective metallurgical process. Just take slabs, use one process stage and go ahead... to the market" contemplates Serafim Afonin.
How could Russia change its position in the market? It will not be a simple process, he warns saying: "First of all, we should offer the market a really high-quality, high-technology product. Today the technical potential for doing this is becoming available to Russia".

According to the analytical department of the industrial group MAIP, in 2002 supplies of scrap and iron-and-steel scrap in Russia equaled 18.4 million tons. This was 0.5% more than in 2001. Of this amount 6.9 million tons were exported and 11.5 million tons went to the domestic market.

Serafim Afonin makes a note of one prevalent misconception. In Russia and, maybe, not only in this country metal products are usually referred to the category of raw materials. "Conditionally speaking, the cast iron may be included in the category of raw materials but by no means metal products can be put there", Afonin stresses. "This is a highly technological product, a structural material. And it should be considered precisely this way".
As for trade rules, they should assume an absolutely fair competition, Serafim Afonin points out. "Russia should have an opportunity to freely sell its products for competitive prices", he says. So far, however, there are too many restrictions in effect on the world market of metal products.