China’s steel exporters have a tough year ahead. They face the prospect of tighter restrictions on tax rebates, the appreciation of the yuan and greater competition from other exporters in Asia.
Carbon steel exports from China surged to 42.56 million tonnes last year, up 73% from 2009.
But the outlook for 2011 is less promising, thanks to changes in Beijing’s domestic policy and a tougher overseas market.
China is trying to adjust its economy to rely less on external demand and more on domestic consumption.
So far, the government has resisted international pressure to revalue the yuan. But the currency is likely to appreciate this year.
This is bad news for exporters, especially when the international steel market is becoming much more competitive.
Japan’s steelmakers are pushing hard into other Asian markets — their domestic market is still weak. And South Korean steelmakers have added a lot of capacity in the last year. This is substituting imports from China.
But exporters’ woes aren’t just down to these general trends. There are also specific policy changes on the cards that could throttle overseas shipments of some products.
The government is reviewing rebates on a range of metals produced by energy-intensive industries.
And last week the China Iron & Steel Assn (Cisa) dropped a heavy hint that tax rebates could be phased out on some alloy products, flushing out the practice whereby mills add boron to carbon steel in order to qualify for a rebate.
“There have been widespread rumours over the past few weeks that Beijing could take some measures in the first quarter,” a steel exporter based in Shanghai said.
“For steel products, it is said that the rebate for products with boron would be scrapped,” the export director of a mill in northern China said.
This would hit sales to overseas markets hard, he said.
Last time Beijing cut rebates on July 15 2010; the government cancelled 9% export tax rebate on hot rolled coil, steel sections and hot and cold rolled strips. All together, these products accounted for around 45% of Chinese steel export volumes at the time.
This forced some producers to raise their prices and many of them lost business. But others found a shortcut, including adding tiny amounts of boron to carbon steel products like hot rolled coil and plate. This meant they still qualified for the 9% tax rebate available on exports of alloyed steel.
Several buyers complained that boron-bearing products are harder to weld. But boron-bearing material has since driven more expensive ordinary material off the market.
Now some producers are getting worried, not least because the export market has only started perking up recently.
“I doubt the necessity of the adjustment, since export volumes remained low in the second half of 2010,” a source at a steelmaker in Jiangsu province said. “There is no need to deliver such a blow to the export market when there is no surge in exports.”
China’s exports of hot rolled coil fell every month during the second half of last year. They are expected to rebound from December’s multi-year low thanks only to the recent price rally, market participants said.
But steelmakers are adaptable and not everyone is as worried. Some mills are treating the potential rebate cut as just another technical challenge.
“Even if boron-containing steel exports stop qualifying for rebates, we can still take other measures to make our plate qualify for other rebates, as we did before,” a source at a major producer in Tianjin said.