Fitch: High prices smooth out the impact of Russian export duties

According to Fitch Ratings, high prices for steel and non-ferrous metals will soften the impact on domestic steel producers of the proposed temporary export duty.

“However, if measures are extended, the impact could be greater if prices decline,” the agency said in a note. “We expect the new duty to have a limited impact on global metal prices, although in the short term it may affect the steel and aluminum markets.”

The Russian government has proposed a 15% export duty on steel and metals, or a minimum rate of $ 54 per tonne for hot rolled iron and $ 115 per tonne for most steel products. It will apply from August to December 2021 for all exports, except for exports to the Eurasian Economic Union (EAEU).

In Fitch’s view, Russian steel companies have a material rating stock in 2021 due to higher-than-expected prices for steel and metals. In addition, export duty-related cash outflows could result in a reduction in dividends as companies’ financial policies are tied to free cash flow levels.

Both NLMK and Evraz export about 50% of the steel produced domestically, and will suffer approximately the same from this. The impact on Severstal will be less due to lower exports and a high share of high value-added products, the agency said.

Metalloinvest is export-oriented, but benefits from high export duty-free iron ore prices. MMK sells mainly on the domestic market, while the EAEU makes up a significant share in its total exports, Fitch notes.

“Certain types of rolled metal, such as pipes, are not subject to duties, which means that the impact on pipe producers is likely to be neutral or positive as the availability of locally sourced metal is likely to increase,” he adds. “The decline in steel exports from Russia could provoke further price increases, given the strong global demand and limited supply. Domestic steel prices will be driven by an increase in export targets, an increase in domestic supplies and a decrease in netback levels. ”

However, the domestic market will not absorb all the additional volumes, especially semi-finished products, and the country remains a net exporter of steel, Fitch concludes.

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