Concerns that China’s central government may roll back the increase in export tax rebates on steel introduced last March are being voiced particularly strongly by exporters of hot-rolled coils (HRC). According to a new study by Mysteel, Beijing’s reinstatement of the 9% rebate – compared with the present 13% level – could result in Chinese HRC exports tumbling by an estimated 30%, equivalent to 1.4-1.8 million tonnes/year.
Rumours of a possible cut to the rebates emerged in late December when China’s Ministry of Industry and Information Technology firmly instructed steelmakers to reduce crude steel output this year, as Mysteel Global reported. But with the country’s economy still recovering and steel demand likely to increase on year, some institutions are suggested that dissuading exports would be one method to offset any reduction in domestic steel supply.
“Recently, everyone (in the industry) has been talking about the possibility of a tax rebate reduction and its impact,” a major steel exporter based in East China’s Zhejiang province observed.
In March last year as part of an economic stimulus package to counter COVID-19 damage, China lifted tax rebates on some 1,084 goods – on everything from concrete to kitchenware but also including steel – to 13%, and those on another 380 items to 10%, as Mysteel Global reported.
Rebate reductions might be applied to other steel products too, but the implications for HRC are those occupying discussion because HRC products including hot-rolled sheet and strips are by far one of the largest Chinese steel export categories, even though last year’s exports at 6.7 million tonnes were down 25.7% on year. During 2020, HRC exports accounted for around 12.5% of China’s total steel exports.
Any winding back of the HRC rebate – effectively cutting this by 4% – will largely reduce the Chinese exporters’ flexibility regarding their sales prices in foreign markets. Should the rebate reduction translate to higher offer prices by the Chinese mills, this would also cool the speculative trading of foreign market players in Chinese products, especially in the markets whose prices are relatively close to China’s, according to Mysteel’s study.
At prevailing HRC market levels, that 4% translates to a margin of Yuan 150-200/tonne ($23.1-30.9/t) were Chinese exporters to pass along that margin to foreign buyers. The removal of this “would weaken the competitiveness of the steel mills that rely on selling at low prices,” the study stated.
In terms of HRC exports, China mainly competes with Russia, Ukraine in East Europe, Vietnam in Southeast Asia, India in South Asia, Japan and South Korea in East Asia as well as Brazil in South America.
On February 4, China’s export price of SS400 4.75mm HRC was assessed at $643/t FOB from North China’s Tianjin port, while HRC from East Europe was at $710/t FOB from the Black Sea ports and Japan-origin HRC at $760/t FOB, according to Mysteel’s assessment.
A less likely scenario, though one that market pundits are discussing nonetheless, is the abolition of the entire 13%. Removing this completely would mean that Chinese exporters would have to sacrifice Yuan 570/t or $80-90/t of their margin, or raise their offer prices by this amount. “In this case, prices of Chinese HRC would be higher than most regions and (exporters) will only be able to export small volumes to a few markets that their rivals hardly cover,” the study warned.
In that case, “over 90% of HRC exports will disappear,” according to the study.
Written by Olivia Zhang, zhangwd@myteel.com, Leo Cao, caojy@mysteel.com and Tony Wu, wujchang@mysteel.com
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