China has announced changes in its import tax policy, cutting the existing two percent import duty for non-ASEAN origin steel billet and slabs to zero, and cutting the pig iron import tax from one percent to zero. Import tariffs have also been cancelled for recycled steel raw materials, ferrochrome and some other products, SteelOrbis has learned. The move is aimed at ensuring raw material supply for China's steel industry. Non-ASEAN semis suppliers will benefit the most, sources have said.
New tariffs to be effective from May 1
On April 28, the China’s Ministry of Finance stated that, in order to better guarantee the supply of steel resources and promote the high-quality development of the domestic steel industry, with the approval of China’s State Council, the Tariff Commission of the State Council recently issued an announcement to adjust the import tariffs for certain steel products starting from May 1, 2021.
According to the new policy, the zero import tariff rate will be effective for imports of square billet, slabs and ingots, including those of stainless steel, while now the tax is two percent for the abovementioned materials from non-ASEAN countries. In addition, the import tax for pig iron will be cut from the current one percent to zero as well. The finance ministry has also included in the list of products, which will have a zero import duty rate, recycled steel raw materials (steel scrap), ferrochrome with a carbon content of four percent or less, DRI, HBI, iron ore lumps and pellets.
Moreover, “the export tariffs for ferrosilicon, ferrochrome, high-purity pig iron and other products are appropriately increased,” according to the statement of the ministry. The export tax rate for ferrosilicon will be 25 percent, for ferrochrome – 20 percent and high-purity pig iron – 15 percent.
“The aforementioned adjustment measures are conducive to reducing import costs, expanding imports of steel resources, supporting domestic reduction in crude steel production, guiding the steel industry to reduce total energy consumption, and promoting the transformation and upgrading of the steel industry and high-quality development,” the finance ministry said.
Non-ASEAN billet exporters to increase prices in China
The cut in the import tax in China will have a positive effect on non-ASEAN billet suppliers, as they will have the same zero tax rate as ASEAN producers and will be able to increase their tradable prices by $15/mt. “We are still evaluating the changes, but this will definitely push prices up,” one international trader said. “The market is going to pop,” another large trader said, adding that prices for both ex-ASEAN and non-ASEAN billet are expected to be at $680/mt CFR this week and will keep going up closer to $700/mt CFR. “This news is expected. Of course, this is a plus for us,” one of the exporters said.
As SteelOrbis reported just yesterday, the tradable value for ex-ASEAN billet was $675-680/mt CFR and for non-ASEAN the workable level was $660-665/mt CFR. The latest deal was rumored for ex-Indonesia billet at $680/mt CFR and the same level was discussed with one of the Vietnamese sellers.
It is expected that suppliers from the CIS, the Middle East, India and Iran will try to benefit from the lower import duty in China. However, the price situation in the import billet market in China in the near future will still depend on the local billet and rebar trend. Over the past two days, steel mills in Tangshan have been holding their billet prices stable at RMB 4,980/mt ($768/mt) ex-works, including 13 percent VAT. This price is equivalent to $679.5/mt, excluding VAT.
Small impact on pig iron and scrap imports, but imports may increase in time
The immediate impact on the import scrap and pig iron market is rather small, according to sources polled by SteelOrbis. In the scrap segment, the price situation is dependent on demand from the major steelmakers, which have started holding back from purchases ahead of the Labor Day holiday on May 1-5.
Global basic pig iron (BPI) suppliers will not miss the opportunity to obtain support from the new announcement; however, in reality, no significant effects on trading are expected in the short term. Even taking into account the lifting of the import duty, the workable prices for pig iron in China are much lower than the levels targeted by suppliers. “China is still far behind on BPI. Hence, we do not expect any effect,” a key international trader commented.
However, in a longer term, pig iron imports will be supported and the latest move of the government “will help to expand the import of steel raw materials to a certain extent and form a certain supplement to the supply of iron ore. There is a certain intention to suppress the price of iron ore,” another source said.
With regard to the recent announcement of the Chinese government, China could be back in the import market for pig iron fairly soon after the holidays. “HRC and rebar are soaring, along with most of the downstream products. Domestic pig iron is sold at around $590-600/mt ex-works, including taxes. Import offers for HS and structural scrap are at $500-530/mt CFR and domestic scrap is expected to increase gradually as well. That said, the gap is narrowing closer and I guess imported pig iron stands close to the edge,” a third trader stated, echoing the general sentiments.
$1 = RMB 6.4853