UAE to Implement VAT in Jan’18; How will it Impact Ferrous Scrap Market ?

The UAE Minister of State for Financial Affairs, His Excellency Obaid Humaid Al Tayer, has stated that the UAE will implement VAT at the rate of 5% on 1 Jan’18. It is applicable to range of items including ferrous scrap. VAT is a tax on consumption and is levied on the price charged to end consumers. Therefore it is expected that prices will increase post VAT imposition.

UAE – one of the major global scrap exporters 

UAE stands 10th in the list of largest global ferrous scrap exporters with volumes of around 0.96 MnT in 2015.

It exports around 1 MnT scrap annually. 90% of scrap exported from UAE reaches India because of the zero container freight realization on export to India. Indian semi finished steel manufacturers are highly dependent on Dubai origin HMS to be used as raw material for prompt delivery and good quality.

According to data maintained with SteelMint, during Jan-Sept’17, India imported 3.6 MnT ferrous scrap. UAE remained the 2nd largest supplier to India after USA. UAE exported 0.5 MnT ferrous scrap in the mentioned time frame occupying a share of 14%.

Expected Impact of VAT implementation – Reports

”Market participants are still lacking clarity on how will the VAT imposition will go. Its ‘wait & watch’ scenario as of now. HMS scrap exporters in Dubai have turned silent and are not quoting offers actively. Scrap yard collection is low and they are clearing their old orders. However increased cost of VAT imposition will be passed on to the end consumers which may result in increased prices”, shared a Dubai based scrap trader.

Few participants highlighted that Dubai based scrap suppliers are already adding USD 10-15/MT extra and quoting offers owing to upcoming VAT imposition.

Last trade for Dubai origin HMS heard at USD 345/MT, CFR Nhava Sheva in containers. However as of now Dubai based scrap exporters are not heard quoting fresh offers owing to lack in clarity over market post VAT implementation. Prices are expected to increase from 2nd week of 2018 after market gains clarity over it, commented an India based participant.

This may also affect/influence other Asian scrap importing countries like Pakistan and Bangladesh as the importers in these regions also import HMS (80:20) from UAE.