Chinese steel mills and traders have been making preparations to shield their business from the impact of any cuts to export tax rebates on certain steel products being mulled by the central government. Industry sources say there’s a new sense of urgency to the planning amid increasingly loud rumors in and out of China that the rebate cuts will be announced in a few weeks.
As of the morning of March 18, no official announcement had been released, and tax policy department officials at China’s Ministry of Finance – the department responsible for formulating such policies – declined to comment on the issue.
Meanwhile, the market chatter has intensified lately, Mysteel Global notes, with the latest whispers suggesting that the tax rebate adjustments on steel products will be announced in early April and the policies implemented starting May without a grace period.
The likely size of the rebate reduction remains unclear, but most observers are betting on a 4% cut, market sources said.
As the speculation mounts, Chinese steel mills and traders are taking different precautions to guard against any negative impact of the expected changes in rebate.
For example, a major steel producer based in Northeast China has now included a clause in sales contracts that “if the export rebate adjustment is within the range of 0%-4%, the corresponding increment in cost shall be borne separately by the seller and buyer, on a 50/50 basis”.
On the other hand, if the export rebate adjustment is within the range of 4%-13%, “the seller has the right to cancel the contract,” the updated contract warns.
Currently for hot-rolled coil, the product that China exports the most of, the tax rebate stands at 13%. Consequently, a cut of 4% would mean that the rebate will return to 9%, the level HRC was at before the finance ministry raised the rate with a package of other products to encourage exports in March 2020 – when China’s economy was struggling under the COVID epidemic.
If sellers transfer all their increase in cost onto sales prices, the price of HRC would likely jump by $30/tonne. At prevailing prices, the export price of SS400 4.75mm HRC would increase to $770/t FOB at Tianjin port, North China, according to Mysteel’s assessment.
“If prices suddenly jump, it will be difficult to generate export orders,” a steel trader based in Hongkong commented.
Due to the policy uncertainties, some steel exporters have stopped offering prices and instead, are waiting for the policy change to be formalized, according to a Shanghai-based market watcher. On the other hand, others are trying to deliver now so that shipment can be completed before April or May, afraid that their costs may increase soon, she said.
Yet, longer term, any tax rebate changes are unlikely to impact the outflow of Chinese steel products much, a Beijing-based analyst stated.
“I believe that the degree (of rebate cuts) will most likely be between 3%-6% (so) it will just be like a daily price hike. The market will soon rebalance itself,” he said, noting that Chinese-origin HRC prices remain competitive in the global steel market.
Written by Olivia Zhang, zhangwd@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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