(Updates with Severstal comment in sixth paragraph.)
Dec. 12 (Bloomberg) -- Russia may export more scrap metal to European steelmakers after joining the World Trade Organization this month, resulting in a shortage at home, according to Morgan Stanley and OAO Novolipetsk Steel.
The country will reduce a tax on scrap exports to 5 percent from 15 percent over five years as part of WTO membership requirements, said Anton Bazulev, a spokesman for the steelmaker known as NLMK. Scrap exports will increase, narrowing the gap between lower domestic prices and higher European fees, he said.
Russia expects to join the WTO this month after an 18-year wait, lowering export barriers that include a levy on shipments of scrap to Europe. Any surge in Europe-bound volumes could affect the quantity available for steelmaking operations at home, where producers including OAO Severstal are adding steel mills to meet demand.
Russian use of scrap is set to more than double to about 40 million metric tons in 2018 from 18 million tons in 2010 as infrastructure spending drives steel demand, Dmitry Kolomytsyn, an analyst at Morgan Stanley in Moscow, said today by telephone. Steelmakers adding electric arc furnaces fed by scrap may see reduced profits from such projects after the tax shift, he said.
Severstal has invested $350 million in a so-called mini- mill for long products at Balakovo in the Volga region, which is due to start in 2013, according to Metal Bulletin. The total cost may reach $600 million, Metal Bulletin said.
Volga has a surplus of scrap, and supply in the region will reach about 500,000 tons in 2015, Natalia Ivanova, a Severstal spokeswoman, said today. Producers may use substitutes such as steel shavings or cast-iron scrap if prices increase, she said, adding that inclusion in the WTO could cause a decline in exports as prices at home rise.
Scrap for sale in central Russia fetched about 8,700 rubles ($276) a ton in November, while exports to Europe reached $425 a ton, according to NLMK. Russia has sold about 6 million tons of ferrous scrap abroad this year, down from 7.3 million tons in 1998, the year before the tax was introduced, the company said.
NLMK, which consumes about 3.5 million tons of scrap a year, 3 million tons of which it produces itself, is building a mini-mill in Kaluga, west of Moscow. The company has “large” scrap resources nearby, reducing the risks to the project, Morgan Stanley’s Kolomytsyn said. Mini-mills are small plants that use electric furnaces to produce steel from scrap.
OAO Magnitogorsk Iron & Steel, a Russian competitor, is self-sufficient in scrap and doesn’t see any risks from the country’s entry into the WTO, the company’s press office said.
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