The much-awaited steel export tax from China may soon become a reality. There is no official announcement yet but the rumours, which have been floating in trade circles for the last two months, have gained further momentum of late. Market sources told SteelMint, China may increase the export tax rate of some steel products on 1 Aug’21. The tax on hot-rolled products may increase from 13% to 20%, and that cold-rolled products and galvanised steel, which had nil tax so far, may now see an 11% tax imposition, while the rebar export tax rate could be hiked to 20% from the current 13%.
If imposed, it will be the second time in CY’21 that China will be adjusting the export tax rate on steel products. Since 1 May’21, China has cancelled the export tax rebate on some steel products, and slapped an export tax rate of 13% on carbon steel.
Mills quiet
A direct impact of this rumour is that the Chinese HRC export market has been quiet since the last few weeks with most mills holding back offers. Whatever was being offered was only from the larger mills, but at very elevated levels, at which no deals were concluded. Some of the HRC offers are currently at $1,030/tonne (t) FoB while CRCs were nudging $980/t FoB levels. Towards the beginning of Jul’21, the HRC export offers were in the range of $930-940/t FoB.
Affected by the cancellation of the previous round of export tax rebates and the continuous increase in domestic steel prices, China’s HRC export offers rose 27% in April-May’21. The offers even once touched $1,050/t.
After mid-May, due to the decline in domestic steel prices, China’s steel export offers softened. Attracted by the notable price gaps between domestic and overseas markets, China’s steel exports remained at a relatively high level from May to June.
Disincentive for mills
The move, if announced, will be a direct fallout of the strong steps taken by China to reduce crude steel production within the country. China is keen to keep its CY’21 crude steel production at CY’20’s level of around 1 billion tonnes.
The production cuts will necessitate that finished steel output remains within the country for China’s own domestic use, especially since it has gone into developmental mode post-pandemic with a thrust on the infrastructure and automobile sectors. Therefore, at this juncture, the export tax will strongly dissuade mills from exporting.
China, in a synchronised manner, has been taking steps to curb industrial pollution. The production cuts, withdrawal of the 13% export rebate on 146 steel products in May’21, crackdown on commodity inflation are all part of the twin macro policy of cleaning up the environment and focusing on quality steel development.
Already, thanks to strict production cuts, blast furnace capacity utilisation has dipped to 88% while the same for its electric arc furnaces has dropped to a three-month low.
China’s steel exports
China’s total flat products exports, meanwhile, have risen 32% in Jun’21 to 4.67 million tonnes m-o-m against 3.54 mn t in May’21. Longs exports increased 5% to 0.99 mn t from 0.94 mn t in the same period.
In CY’20, China’s total steel exports were about 53.67 mn t. In H1 of CY’21, total steel exports have reached 37.38 mn t, of which flat steel accounts for 65%. Plate products, mainly coated strips, HRCs and CRCs account for almost half of China’s steel exports. Therefore, if steel exports flow back to the domestic market in H2, supply of flat steel will increase significantly.
Outlook
If the HRC export tax is increased by an additional 7% to 20%, the export cost will increase by $60-70/t. For CRCs, the 11% tax will increase the export cost by $100-110/t, which will greatly reduce the competitiveness of China’s steel exports,” a source from China informed SteelMint.
Prices as on 8:50 IST, 28 Jul. d-o-d changes indicated against closing price of 27 July
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