SÃO PAULO Gerdau SA has been working with Brazilian steel institute IABr on the formulation of a ferrous scrap export tax.
"Gerdau went with IABr to the government demanding this (export tax)," André Gerdau Johannpeter, chief executive officer of the Porto Alegre, Brazil-based steelmaker, said in a meeting with investors and analysts in São Paulo.
The aim is to impose the tax on exports to countries that themselves have export restrictions, he noted.
"In China, the export tax (on scrap) is 40 percent; in India, 20 percent on average; in Russia, 20 percent to 30 percent," Johannpeter said.
And in some countries, such as Argentina, Indonesia and Uruguay, exports are entirely prohibited, he added.
"Our demand is reciprocity," Johannpeter said. "If these markets dont allow exports, or impose restrictions, why should we have no restrictions (in) Brazil?"
Figures from Brazilian foreign trade secretariat Secex show that most of the countrys ferrous scrap exports go to countries with such restrictions. Exports reached 345,912 tonnes in the first 10 months of the year, of which 143,975 tonnes went to India, 27,290 tonnes to Indonesia and 17,255 tonnes to China. In the corresponding 2011 period, exports totaled 206,774 tonnes, of which 69,893 tonnes went to India, 1,009 tonnes to Indonesia and 18,764 tonnes to China.
Scrap represents a high proportion of the costs for Brazils long steel producers, and there is insufficient material available locally. "In Brazil, scrap is limited. There is no surplus in the country, so 15 to 30 percent of melt shops charge is made up by pig iron," Johannpeter said, adding that scrap represents 40 to 50 percent of Gerdaus raw materials costs in Brazil.
However, scrap collectors and processors have argued that exports are an alternative for them to get higher prices and avoid being totally dependent on local purchases by Gerdau, ArcelorMittal SA and Votorantim Siderurgia, Brazils three principal long steel producers.
Inesfa, Brazils institute of iron and steel scrap companies, recently told a local newspaper that an export tax would enable local steelmakers to limit the pricing power of the scrap companiesmainly small, family-based firms in a fragmented market.
Barclays Capital Plc analyst Leonardo Corrêa said in a recent report that, apart from the reasons put forward by IABr, the export tax could also be "an attempt to maintain current control of domestic scrap pricing."
"The local scrap industry has been trying to develop an export channel in recent years to partially mitigate the differences in local bargaining power," he said, noting that there are only a few large scrap buyers and a very wide base of small scrapyards.
A version of this article was first published by AMM sister publication Steel First.