The FINANCIAL — Black metal export took 3rd place in export list this year as 7.7% of the total export.
In 8th place was copper scrap, which consists of 2.7% of the total export. According to the National Statistics Office of Georgia 4,117 million USD is the amount of foreign trade turnover. From that, export is 10,375 million USD and import is 30,795 million USD. In 2011 export has grown by 44% and import by 36%. Recently, the demand on scrap has increased by 20%.
Scrap business is one of the most successful businesses in Georgia. The demand on scrap is always high all year round.
Mainly Georgian scrap is exported in Turkey, India and China. This year 109,000 tons of scrap was exported to Turkey alone and 192,000 tons last year.
“I buy 400 kilos of scrap per day. When I have gathered 2 tons of scrap, I take it to the Navtlugi or Lilo market. From these markets scrap is exported to both foreign and local metallurgical factories,” said Akaki Butskhrikidze, owner of a scrap receiver unit. “I buy 1 kilo of scrap for 0.35 GEL and 1 ton of scrap for 350 GEL which I then sell it for 410 GEL. Therefore my profit is 60 GEL per ton. As I sell 2 tons of scrap per week, I get a 120 GEL profit,” he added.
As for the price of scrap metal, it is determined by Turkey which is the biggest scrap recycling country in the Black Sea Region. Prices are also set according to how much scrap is exported. Nowadays, the scrap metal price in Turkey is 400-500USD. In the local market it costs 400-450 GEL.
It is expected that the scrap price will be reduced, because of high excise tax. The current low scrap export is taxed at 160 GEL per ton whereas before the excise tax it was 120 GEL per ton. Scrap export tariff, known as excise tax, won’t be determined by the low any more, but by how the government determines it from August, 2011.
Scrap export and scrap delivery to the local market is equally profitable if exporters don’t consider the high tariff imposed on export. This causes discontent among the exporters.
“It’s in the local market’s interest for scrap not to be exported but to be delivered to local metallurgical factories,” said Gela Chakvetadze, a scrap factory employer on Kairo Street.
“But the exporters’ interest is to sell scrap where it will be profitable. In the current world market Georgian scrap is one of the cheapest after Dubai and Bulgaria. In the case of increasing the tariffs, Georgian scrap will lose its competitiveness,” Chakvetadze added.
“Such a high excise tax has made the local market become much more attractive for us,” said Levan Gamtsemlidze, exporter and the director of Metal Impex.
“I guess, it was done so that scrap isn’t exported but is delivered to local factories. Turkish prices can’t compete with local ones. In Georgia scrap’s delivery price is on average 275 USD. As for the export in Turkey, the cost of transportation is 15 USD, others charges cost 20 USD, excise tax is 95 USD and the shipping costs are 40 USD. Overall 170USD is needed for the export of scrap. In Turkey, scrap prices must be 445 USD, so that the exporter has the same conditions as in local market,” Gamtsemlidze added.
“It won’t be profitable for exporters, but for the country it is better for scrap not to be exported. There are more people employed in the metallurgical sector than in distribution. On the other hand, it would be more profitable for the country to sell the final product rather than selling raw materials,” said Tamaz Dolaberidze, president of the Trade Union of Metallurgy, Mining and the Chemical Industry Workers of Georgia.
How many tons of scrap are necessary for the local market? There are three main metallurgical factories in Georgia – 2 of them are in Rustavi and 1 in Kutaisi.
Geosteel, a Georgian-Indian metallurgical factory produces thermo-mechanically treated steel. This metallurgical factory produces approximately 175,000 tons of armatures per year.
Another Georgian-Indian company, Eurasia Steel, has also started a system of scrap purchase. The factory will produce 8,000 tons of armatures per month, which will be sold not only in Georgia, but in Armenia, Azerbaijan and Iran as well.
“20,000 tons of scrap metals are required to fulfill the needs of Georgian factories per month. More then 30,000 tons of scrap metal is made in Georgia. Therefore for the local market the quantity of scrap is more than enough. This supply of scrap will always be available in Georgia and there the possibility of reducing scrap delivery prices is given to local factories. We will be forced to reduce purchase price and so instead of 30,000 tons of scrap, only 15,000 tons will be produced. This means that the prices will be regulated,” said Gamtsemlidze.
Scrap can be made from old cars, refrigerators, radiators, dismantled old heating systems, construction waste and so on. There are two types of scrap – iron and cast iron.
The quality of exported scrap is determined and put into categories. Scrap can be HMS1, HMS2 or the highest qualified scrap. About 80% of scrap must have at least HMS1 quality to be exported. In Georgia mainly HMS1 and HMS2 quality scrap is produced. Scrap thickness must be more than 5 mm, which qualifies it as HMS1 quality scrap.
“Usually, scrap exported from Georgia isn’t well treated. It isn’t pure and contains rubber, plastics, etc. Treatment needs machines and workers, which we don’t have enough of in the country. Turkey has no problem with bad quality scrap, but European countries pay attention to high quality scrap. Even in Georgia there is more demand for high quality scrap than in Turkey, due to the fact that Georgian factories have scrap processing difficulties.
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