CURRENT TRENDS OF THE SCRAP MARKET OF UKRAINE

After analyzing the current trends in the development of the metallurgical industry in general and the scrap metal market in Ukraine in particular, the company Formative Partners has made a number of conclusions. First of all, it should be noted that as of the beginning of 2020, the total reserves of scrap metal in Ukraine were estimated at 350-360 million tons. The structure of all reserves of scrap metal is:

~ 75% - fixed assets of enterprises;

~ 12% - complex scrap metal;

~ 8% - household scrap;

~ 5% - transport and infrastructure.

The negative factor influencing the quality of scrap metal is the slow renewal of fixed assets, as a result of which the share of household and light scrap is growing. In addition, you can see a significant amount of raw materials, which requires additional costs for extraction and processing.

Taking into account the average service life of fixed assets, which is about 25-30 years, it is not difficult to calculate that the country has the potential to generate up to 5.0-6.0 million tons of scrap annually. Unfortunately, similar figures were demonstrated back in 2000. However, virtually all government agencies considered it their duty to regulate the scrap market. The reason is simple: high opportunities for corruption. This can be called one of the reasons for the stagnation of the industry.

At present, the volume of scrap metal procurement has decreased by 1.32 million tons. There is a process of rapid degradation of the scrap market. All this is happening in parallel with the introduction of metallurgists of modernized facilities for the production of steel and rolled products, which significantly reduces the formation of recyclable scrap metal, increasing the need for high-quality imported raw materials in large quantities. In the short term, Ukrainian metallurgists plan to almost double the consumption of imported scrap metal: up to 5.0 million tons per year. This situation can lead to a real shortage of supply of scrap metal, and as a consequence - increased competition among consumers.

Comparing the European Union and Ukraine, it can be concluded that there are significant differences in the structure of scrap procurement.

In the EU: ~ up to 20% depreciation scrap.

In Ukraine: ~ up to 75% depreciation scrap.

This is a negative trend, because depreciation scrap should not be collected, but extracted from buildings, structures and written-off equipment. The whole process requires a large amount of investment and long terms of their return. In such conditions, metallurgists try to use different ways to reduce purchase prices for suppliers, but all these measures do not lead to a positive dynamics of scrap procurement.

Another topical issue for metallurgists is the quality of scrap metal supplied.

At present, a new barrier has arisen for the export of scrap metal - the lack of practical possibility of issuing certificates of origin of scrap metal EUR.1, required for deliveries to EU countries.

European legislation strictly regulates such a quality parameter as contamination with harmless impurities: the maximum allowable value is not more than 2%. Excess, and especially conscious improvement of quality, entails corresponding consequences. In Ukraine, the rate of contamination with harmless impurities is quite loyal.

The second key parameter is thickness and linear dimensions. In the EU countries deliveries to consumers are conducted separately by type, in Ukraine almost everything is delivered in a mixed form. European metallurgists, paying a competitive market price, require the supply of high-quality prepared scrap metal, divided by types and sources of education. Ukrainian metallurgists, due to the fact that there is a virtually foreign duty, are trying to dump at a price, attracting scrap metal of any quality, the most important - quantity. Next is the process of bringing the scrap to the required parameters by organizing additional processing directly on the territory of metallurgical plants. All this, unfortunately, reduces the scrap metal industry to ordinary collectors of raw materials. In conclusion, neither expensive scrap processing equipment on sites nor qualified personnel are required.

The necessary steps towards capacity development and efficiency of the industry should be identified.

First of all, it is necessary to build an open market model of the industry with limited government regulation.

Secondly, it is objectively necessary to reduce the rate of export duty to an economically justified level of 10-15 euros / ton.

Third, it is necessary to remember to stimulate the supply of high-quality scrap metal, divided by types and sources of derivation.

Also, the level of purchase prices should be maintained at a level that stimulates investment in both sources of scrap metal and scrap processing equipment.

If the scrap metal market of Ukraine is developed in this way, it will undoubtedly move at a dynamic pace and reach a qualitatively and quantitatively new level. Summarizing all the necessary steps for this, we can name the following: market-type pricing, healthy competition, clear and transparent regulation.

What consequences can be expected in this context?

First of all, increasing the level of scrap metal procurement, first of all - not only in quantity but also in quality. This applies to both procurement and commercial raw materials.

Secondly, it can be argued that the scrap market will be more attractive for investment, which in turn will introduce the latest scrap processing technologies, purchase new necessary equipment for scrap processing, of course, create jobs, attract specialists, and replenish the state treasury at the expense of payment of taxes.

Third, the general increase in the volume of scrap metal allows for the further development of metallurgical production on a general scale, as well as contributes to the construction of new enterprises, plants, production facilities.

Let us remember that the scrap metal market in general and its procurement and processing in the first place is a full-fledged and extremely important branch of Ukrainian industry. The importance is due to the fact that it provides metallurgists with the necessary raw materials. Therefore, FP pays special attention, support and works on the development of this industry.

Analyst: В