Trading circles are abuzz with a rumour that China could be mulling an export duty on finished steel items, in a bid to further restrict exports and control inflation. Sources in China told SteelMint that there is no government circular on this but the rumours refuse to subside.
As per trading sources, the buzz is that the duty could be anywhere from 10-25% but this is entirely based on hearsay and SteelMint does not have any official confirmation on the same.
Further, as per hearsay, this export duty will have to be entirely borne by the importer in case of all fresh offers that will originate from the Chinese mills. Consequently, a trader indicated, the Chinese offers (from smaller mills) may look cheap at the moment with quotes hovering around $950/tonne CFR. But, effectively, the material will not be cheap in case, say, a 10% duty is imposed and which has to be borne by the buyer. For the buyer, the price would amount to $950/tonne plus an additional $90/t in tax, which would make the material quite expensive, feel sources.
Larger implications
In the event of the tax being imposed, one cannot escape some of the larger implications. One is that the Chinese government is perhaps trying to bring in measures to cut back on overseas steel sales to disincentivise exporters. Lesser exports mean the material stays within the country for domestic utilisation against the backdrop of a series of production cuts. A recent example is withdrawal of the export rebate of 13% on 146 steel products on 1 May ’21. The production cuts are part of an ongoing strategy to curb industrial pollution.
Secondly, the Chinese government is keen to control commodity prices to curb inflation and restricting exports can aid that policy.
Steel prices drop in China
Domestic steel prices saw a dramatic rise after the Labour Day holidays over 1-5, May ’21, driven by strong bulk commodity prices in the global market, easing of global liquidity and expectations of a steel demand recovery. However, the prices retreated fast from mid-May following the government’s warning on runaway commodity prices.
Export prices of the 3-12mm SS400 HRC grade tracked by SteelMint show a rise from around $700/t in early Mar ’21 to well over $1,000/t around mid-May ’21 to settling at a little lower than $1,000/t in the third week of the current month. Q235 billets of 150*150mm, ex-Tangshan, rose from RMB 4,200/t in early March to RMB 5,700/t in mid-May to fall back to above RMB 4,900/t levels.
Indian mills to benefit
This likely move can only be good news for Indian steel mills. They would be in a position to capture the markets vacated by China. Export margins are meatier. Global HRCs rates are ruling higher by around $1,100/t at present against the domestic prices, and this gap is expected to widen further. Thus, mills would only be eager to export rather than service a dull domestic market, which may take some time to recoup thanks to the second Covid surge in India.
~ Madhumita Mookerji
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