OREANDA-NEWS. December 07, 2009. The Russian government approved an extension of higher import duties on pipes for another nine months. The document is to come into force seven days after publication (in other words, some time in mid-December), reported the press-centre of VTB Capital.

According to this document, import duties on different types of pipe are to be set 10pp higher than stated in the main Government Resolution on Russian Federation Customs Tariffs. As a result, import duties on different types of pipe will range from 15% to 20%.

The previous version of the document which set higher import duties expired in mid-November, meaning that there has been a period of approximately one month when import duties were low, which we think might have triggered higher imported volumes of pipes into Russia, particularly from Ukraine. We expect the increased competition to have had a negative effect on the fundamentals of the Russian pipe market but less so for oil and gas pipes (LDP, OCTG and line pipes) as they are predominantly supplied under long-term contracts.

We look at the news in the broader context of continuing negotiations with Ukraine over setting the duty-free import quota for 2010 and thereafter (the previous five-year agreement expires in December). Russian pipe producers have been actively lobbying to minimise this quota, which we consider to be a valid course of action given the current spare pipe capacity in Russia.

In our view, the Russian government will take a tougher position with regards to Interpipe’s supplies from 2010 by i) decreasing duty-free imports and ii) protecting domestic producers from Ukrainian and Chinese imports via import duties. While import duties are now coming to pass, we expect a decision on the former by the end of the year. This is one of the key near-term catalysts for the Russian pipe sector.