Chinese Government slashes export duty on steel products

In a move that could drastically alter fundamentals of International steel and scrap trade, the Tariff commission of the Chinese State Council on December 15, announced a reduction of export duties on many steel products and a complete removal of such duties on steel scrap, starting January 1, 2018. Although the move is being interpreted by industry experts as a countermeasure against declining exports, the Chinese government, however, in its official statement has cited the change in overseas trade conditions as the reason behind the sudden policy shift.

Flooding of Chinese scrap

Lower export duties would provide considerable room for exporters to drop prices thus drastically altering global steel rates. Once the demand in China slows down in the next couple of months and the winter season steel production cuts kick in, scrap stock would begin to surge further in China and may subsequently flood global market.

It may be noted here that the 40 per cent export duty on Chinese scrap has been one of the biggest hurdles restricting Chinese scrap from sweeping across the Asian markets. Since the Chinese authorities clamped down on obsolete induction furnaces in the beginning of 2017, scrap inventories have skyrocketed within the country compelling sellers to seek overseas buyers. In the absence of the export duty there would be no restriction on sales.

Declining Chinese steel exports

The change in export tariffs have been brought about by Chinese authorities at a time when the countries finished steel exports have slipped by more than 30% percent y-o-y. However, the domestic infrastructure sector in China is showing strong signs of fatigue and may lead to a decline in steel consumption in 2018. Industry experts perceive these concerns to be one of the driving factors behind the recent move.

Pig iron duties removed

Similarly, duties on Pig Iron export which stood at 20% earlier would now be removed. Being one of the most sought semi-finished products, the decision would help China strategically boost its revenue. Along with pig iron, duties on Ferro-manganese, Ferro-chrome, etc have also been reduced as can be seen in the table below.​

Bypassing antidumping duties

Most major economies across the world have imposed strict antidumping measures on Chinese steel primarily finished steel, as a result of which China has failed to capatalise on its massive production potential. However, the tariff and non tariff barriers do now extend to semi finished steel products and scrap. By slashing the tariff for pig iron, china is looking to bypass the antidumping measures and simultaneously increase revenue.