Russian Markets Review Issue 05, September 2013

Government initiatives

Fiscal pressure increasing
The Russian Parliament has drafted a law changing the system of property tax in the country which would lead to a substantial 200-400% tax burden increase for industrial enterprises. The initiative follows a similar reform in the land tax with comparable consequences for the industry. Several thousand legal cases on the increased land tax are still in process in numerous regions of Russia.
Source: State Duma, Vedomosti

Insurance system setbacks
The recently introduced system of obligatory insurance of industrial objects with high risk proved to be ineffective. Less than 2 percent of the insurance fund was received by the insured in 2012. The industry has reopened talks on substantially overstated insurance rates that by far exceed those in other countries.
Source: RSPP

Growth plan measures partially implemented
The Russian Government is still drafting steps aimed at achieving the goals set in the previously adopted growth plan. The currently discussed draft budget for 2014-2016 allocates funds for large infrastructure project (modernization of Trans-Siberian railway and construction of 2 new railways, total investments of $600 mln) while the Ministry of economic development put forward initiatives including the use of National Welfare Fund to reduce bank credit rate to not more than 10% and increasing state support to SMEs (equal access to government procurement, tax breaks, patents for self-employed). However final decisions are still to be negotiated within the Government given the country’s growing budget deficit.
Source: Government of Russia

Steel industry news

New mini-mill launched in Central Russia
Volzhsky electrometallurgical works, a rebar producer with an annual capacity of  120’000t, was launched in Ivanovo region in central Russia on September 3. The new mini-mill, which cost about $40 mln to set up, aims to cater to the local construction industry. Currently the mill includes only rolling capacities, processing billet into rebar. However, investors plan to add an EAF melting shop later on.

Construction of a new mini-mill started in the South region
The new mini-mill with the designed capacity of 160’000 t of long products will be built in Kamensk-Shachtensky in Rostov region. Production of crude steel and rolled products is to start in the second half of 2015 and in 2016 respectively.

600’000 Mt of open hearth capacities to be closed by the end of the year
By the end of 2013 Taganrogsky Steel Plant will close its three open hearth furnaces which will be replaced by the EAF with the designed capacity of 950’000 t. The company will start the gradual withdrawal in October while it is already hot testing the new EAF.
Source: Metal Expert

Metalloinvest to increase HBI capacity
Russian mining and steel group Metalloninvest has started construction on a new HBI module at its iron ore mining and beneficiation plant, Lebedinsky GOK. The new unit with an annual capacity of 1.8 Mtpa is expected to come online in 2016. Currently the group has HBI capacity of 2.4 Mtpa, which is 100% utilized.

Steel using sectors

New automotive cluster to be established in Kaliningrad
Russia’s state-owned Vneshekonombank and carmaker Avtotor have signed an agreement to create a car making industry cluster in Kaliningrad region. According to the contract, 5 car plants and up to 16 component plants will be constructed in Russia’s Baltic exclave by 2020, along with infrastructure and residential buildings. The project will use public-private partnership instruments, including Tax Increment Financing.

Toyota to double its production capacities in Russia
Japanese carmaker will invest almost USD 200 million into its Russian subsidiary, Toyota Motor Manufacturing Russia, doubling its capacity to 100,000 units per year by 2016. The new production line will target the markets of Russia and Belarus with its Rav4 car model, which proved to be quite popular in the two countries.

Russian Machines plans 2 new JVs
The state-owned engineering holding Russian Machines plans to establish two joint ventures, both in Moscow region.  A  JV with Siemens will supply next-generation metro cars for the Moscow underground, while a JV with Agco will produce tractors and harvesters for the Russian market (with possible expansion into CIS markets).

October 08, 2013