Russian metals tycoons and chiefs will ask for taxes to be eased when they meet President Vladimir Putin on Wednesday as the fallout from the war in Ukraine hurts their businesses.
Mining and metals companies want the tax system to return to how it was before changes made last year that effectively raised levies, or to at least fix the price level used for defining tax, according to three people familiar with the matter, who asked not to be identified as the information isn’t public.
Russia in September agreed on tax changes with its biggest metals firms that linked both mineral-extraction tax rates and a new excise on crude steel to global prices, and which affected coal, steel and fertilizer producers as well as nickel and palladium giant MMC Norilsk Nickel. Surging commodities prices at the time prompted Russia to re-consider levies on the metals and mining industry, which has traditionally faced a lower burden than the energy sector.
The war is now pushing the industry to ask the government to reconsider the taxes. While metal is largely still flowing to overseas factories — many traders and fabricators who buy from Russian companies are tied in to pre-existing deals that can extend over years — a growing number in the industry say they won’t take on new Russian business. That’s making it harder for Russian producers to sell output that’s not already contracted.
Commodities buyers around the world are also facing the dilemma of deciding whether to stop buying Russian materials, at a time when crucial metals like aluminum and copper are in tight supply and prices are near all-time highs.
“Like many other industries, Russian metals and mining companies have begun to face a hostile attitude,” Kremlin spokesman Dmitry Peskov said on a call ahead of Wednesday’s meeting. “The meeting will be held in order to develop an algorithm to support the industry and decide how to respond to those hostile manifestations that come from unfriendly countries.”
The Russian government had planned to collect 160-billion rubles ($2-billion) a year from 2022 through 2024 from the metals and mining taxes that were revised last year. As an example of how that affects companies, top steel producer Novolipetsk Steel saw the new taxes costing an additional $300 million to $500 million a year.
Wednesday’s meeting with Russia’s top business representatives will be the first since Putin convened a gathering of them on the day the invasion started. That meeting was later cited by the European Union as justification for sanctions against some individuals because it showed they were members of the “inner circle of oligarchs” close to the president.
Commodities tycoons under sanctions include Severstal owner Alexey Mordashov, Magnitogorsk Iron & Steel PJSC owner Victor Rashnikov and EuroChem Group owner Andrey Melnichenko.
It’s not yet clear whether the Russian metals and mining industry’s plea will be heard by the government. Despite the challenges producers face, high commodity prices mean they are still making profits. The government has also asked steel, nickel and aluminum producers to keep domestic prices low as part of measures to support the economy hit by sanctions.