Ending weeks of heated global market anticipation, China has finally annulled the 13% value added tax (VAT) rebate on exports of 146 steel products from 1 May ’21 that include hot rolled coil (HRC), wire rod and re-bar as well as cold rolled and galvanized sheets, according to a statement issued by the country’s Ministry of Finance. In a separate announcement, the Ministry slashed the import duty on pig iron, crude steel and ferrous scrap- to zero from May ’21.
The government is looking to rein in the burgeoning steel production by removing export incentives and facilitating imports of semi-finished steel. Chinese steel imports increased by around 65% y-o-y to 20.2 mn t in CY ’20 on lower inventories post COVID.
The move to discourage steel exports and facilitate imports of steel-making raw materials comes at a time when China’s crude steel output from 11-20 Apr ’21 stood at 3.045 mn t/day, an increase of about 4% from early Apr ’21 and 17% higher y-o-y, as per China Iron & Steel Association (CISA).
The measures will reduce the cost of imports, expand the import of iron and steel resources and lend downward pressure on domestic crude steel output, Chinese government sources said.
However, in order to guard against possible losses, many Chinese mills had factored in the export rebate cut while floating HRC export offers in the span of a month or so during which global prices had risen steadily.
The rebate for cold rolled coil and hot-dip galvanized coil was not removed, likely because they were deemed higher value-added products, although market participants believe they could also be reduced in subsequent announcements.
In addition to the above, China has raised the export duty to 20% on Ferrochrome, which will come into effect from 1st May’21. However, this will not impact the ferrochrome market as China is not an exporter of ferrochrome. On the contrary, China has to rely on the import of chrome ore and ferrochrome. China imported 861,602t Ferrochrome in the first quarter of CY’21, as per SteelMint sources.
What could be possible outcomes – SteelMint’s view
- Increase in imports of high-quality ferrous scrap which may pressurize China’s demand for imported iron ore
- Rise in imports of pig iron and billets in China. With non-ASEAN billets also having 0% import duty, there could be a greater competitive market seen along with those of ASEAN origin billets. China’s semi-finished steel imports rose significantly to ~17 mn t in CY ‘20 compared with ~3 mn t in CY ’19.
- Steel production may increase in China however the impact of production cuts remains uncertain. China produced 271 mn t crude steel in Q1 CY’21, up by ~16% y-o-y, as per WSA.
- Steel exports from China may fall considering higher domestic realizations.
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