China’s State Administration of Taxation has announced that it is carrying out special audits on tax refunds received by steel producers in Tangshan for exports of square bars. Some Chinese steelmakers and traders have been exporting square bars in place of semi-finished steel, as they can then avail of a tax refund instead of being subject to 20 percent tax. So far, the accounting records of 11 major steel mills in Tangshan have been seized by the Chinese taxation authorities, which will affect cargos due to be shipped by these mills by the end of this month. In addition, these mills are no longer giving quotations for square bar exports.
Since the beginning of the current year, around 800,000 mt of square bars have been exported from Tangshan every month, enabling Tangshan-based mills to increase sales volumes and reduce inventories. With the suspension of square bars exports, the mills in Tangshan will instead be compelled to sell square bars to the domestic market, which will exert a negative impact on domestic semi-finished steel prices in China. Market participants have said that, as a result, domestic semi-finished steel prices in China will decrease by at least RMB 80/mt in the coming weeks.