The government exempted six machine-building enterprises, including the Volga Pipe Plant and Altaivagon, from the obligation to pay excise duty on liquid steel in the second quarter. At the same time, the Ministry of Finance is not yet ready to cancel the excise tax for the entire industry, despite the fall in steel production against the backdrop of sanctions and the strengthening of the ruble. Experts, however, believe that the profitability of steel companies remains relatively high even in the current realities.
The Ministry of Finance agreed on a draft order exempting six enterprises from paying excise duty on liquid steel in the second quarter, Kommersant was told at the Ministry of Industry and Trade. Four companies are engaged in mechanical engineering – Tyazhpressmash, Promlit, VKM-Steel and Altaivagon, and two more special steels are produced – TMK’s Volzhsky Pipe Plant and Krasny Oktyabr Corporation.
The total steel output of these plants is insignificant in the context of the industry: for example, VKM-Steel has a capacity of up to 50 thousand tons of castings per year, Altaivagon has 67 thousand tons, while in general Russia produces 76 million tons of steel per year.
According to the current legislation, plants in the engineering industry and the military-industrial complex that have steel casting shops are exempt from excise duty, provided that their capacity does not exceed 300,000 tons per year.
The excise tax on steel as a way to withdraw excess profits from metallurgists has been launched since the beginning of this year. It is 2.7% of the average monthly export price of slab in the seaports of the south of the Russian Federation. The excise is not levied if the average export price of a slab falls below $300 per ton. According to the Federal Antimonopoly Service, in June the price of $473.8 per ton is used to calculate the excise (in January it was $622).
Initially, the business insisted that the excise tax should not be levied on the producers of all electric steel, but in the end only machine builders were able to get out of it. “The main idea is electric steel. To exclude either all or at least electric steel, which is produced at machine-building and other enterprises where this part of the production cycle is domestic production, ”said Alexander Shokhin, head of the RSPP, at the end of October 2021. Then he expected that about 200 machine-building plants could receive exceptions.
In recent months, metallurgists have again been actively raising the issue of excise abolition, pointing to a sharp drop in margins, the negative effect of sanctions on exports and the cost of logistics, as well as a sharp strengthening of the ruble.
Andrey Leonov, vice-president of Russian Steel, said that in June steel production decreased by 20-50% depending on the company, while production costs increased by 50%. In May and June, the Ministry of Finance and the Ministry of Industry and Trade have already analyzed the situation in order to resolve the issue of the need for adjustments to the excise tax. As Kommersant was told in the Finance Ministry, monitoring continues, and “in the event that the operating profitability of metallurgical holdings falls below a critical level,” the Finance Ministry is ready to consider the issue of adjusting the excise formula.
According to experts, the profitability of metallurgists is still acceptable. “According to our estimates, taking into account vertical integration, the cost of basic hot-rolled steel from large Russian producers (MMK, NLMK and Severstal) does not exceed $500 per ton. Companies can still show double-digit profitability at the level of EBITDA as a percentage,” says Boris Krasnozhenov from Alfa-Bank. The emerging weakening of the ruble and the expected fall in prices for coking coal and scrap metal in the domestic market will also allow metallurgists to reduce costs, the analyst believes. The decrease in domestic prices for coking coal in the third quarter may average about 60%, he believes, export prices for grade Zh coal may fall to an average of 12 thousand rubles. per ton (FCA, excluding 20% VAT) against 26.5 thousand rubles. per ton a quarter earlier.