FOCUS: Asia traders more interested in China’s tax rebates than cuts

“While on the surface it seems like the removal of export duties may cause a surge in the export volumes from China, it is actually the tax rebates for alloys which are more important,” a trader in China said.

This is due to China-origin steel mainly being exported under the relevant alloy HS codes to get tax rebates of 13% and 9% for rebar and wire-rod so that traders can avoid paying higher export taxes for boron-containing steel exports. Alloy steel exports qualify for tax rebates as long as they have 0.3% of chromium added to them. 

China cut trade subsidies for boron-containing steel exports to reduce the flood of Chinese steel reaching global markets, which has led to numerous trade defences imposed by importing countries around the world.

The Organisation for Economic Co-operation and Development (OECD) said in an August 2017 steelmaking capacity development paper that excess production capacity is one of the main challenges facing the global steel sector today, with nearly 40 million tonnes of new capacities to come onstream in the three years between 2017 and 2019.

WorldSteel statistics showed that China accounted for 72% of global steel production, producing 72.36 million tonnes of steel in October 2017. This is an increase of 4.13 million tonnes, or 6%, from the same period last year.

“Removing the tax rebates for alloyed steel means Chinese steelmakers will not want to produce chromium-containing alloyed steel, and that will save them approximately 60 yuan per tonne in production costs.”

“However, the reduction in production cost won’t compensate the loss of the tax rebates and will dampen the export sentiment among Chinese sellers,” the same trader said.

A trader in Southeast Asia said the cuts in steel export duties are not expected to have any effect on key import markets in the future.

“Export duties for boron-containing steel have hardly been applied at all, so it will not have any major impact for now. Of course, the policy developments must be monitored closely,” the trader said.

China’s Ministry of Finance had said on December 15 that export taxes on billet and certain long steel products would be reduced or removed from January 1 next year.

The major steelmaker currently imposes 10-15% export taxes on finished steel products like rebars, coils and wire-rod. Taxes on some of these products will be removed completely. 

Export taxes for billet will be reduced to 10% from the current 15%.

In the short-term, the bullish domestic markets in China have also seen thin liquidity for exports, creating little chances for any steel export tax cuts or alloy export tax rebates to be used.

“It’s almost impossible to talk about billet exports among Chinese exporters now due to the current price hike in the domestic market,” a mill source in Hebei Tangshan said.

This is due to tight billet supply and strong demand for the semi-finished steel caused by winter production restrictions in north China, he said.