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China to increase export tariff on billets and slabs further?

Wednesday, 07 February 2007 17:16:18 (GMT+3)   |  
       
Rumours widespread in China hint that the government may further increase the 10 percent export duty on billets and slabs, up to 20 percent or even as high as 30 percent. The latest off-the-record messages from the government and the China Iron & Steel Association (CISA) also touch on such a tax increase. Is China really considering such a move? Or else are government and industry officials feeding such speculation with a view a) to preventing further semi-finished steel investments in China, and b) to calming the anger of the US and Europe. Effective from the beginning of last November, China imposed a 10 percent duty on semi-finished steel exports. The range of the duty was big, but so was the demand for billet and slabs in Southeast Asia. As a result, China's semi-finished steel exports were huge in November (up 58.24 percent month on month to 1.5 million mt), even after the duty's imposition. However, the quantity decreased sharply in December (to 500,000 mt). The expectations in China are that the current 10 percent export duty will inevitably increase. Currently, there are two main suggestions for the new tax rate - 15 percent and 20 percent. The former would indicate intentions for a balance between the exports of finished and semi-finished products, while the latter would represent the state's solid determination to restrict semi-finished steel export due to environmental considerations. Meanwhile, the mills in Southeast Asia - especially Vietnam which is in the top three semi-finished steel importers from China - are calling on the Chinese government not to increase the tax any further as their steel industry is heavily dependent on Chinese semi-finished steel supplies. China meets approximately 70 percent of the requirements of Vietnam, which has a steel capacity of six million mt per annum. The cost of semi-finished steel exports from China had already increased by $20-30/mt in November. If the tax sees another five percent increase, this will mean another $10-20/mt increase in the cost. Of course, another important reason for China's huge semi-finished steel exports was the strong demand in the CIS domestic market. The lack of Southeast Asia's second most important source of supply (namely, the CIS) caused the demand for Chinese materials to increase further. Currently, the cost of importing billet from China into Southeast Asia is nearly 20 percent higher than the cost of importing rebar or wire rod of the same origin. Even so, there is still huge demand for Chinese finished steel products in Southeast Asia. As a result, and due also to the high profit margins, many Chinese middle and small sized mills continue eagerly to produce and export billet and slab. At the moment, the government is waiting to see the export figures for January. Unless a further decrease is observed, the government may increase the duty to 15 or, a lesser possibility, to 20 percent. In addition to January export figures, whether the government decides to reduce the export rebate rate for finished steel products further or not will also be another factor that would affect the announcement of an additional duty for semi-finished steel exports. The USA has applied to the WTO accusing China of providing unfair support for exports. However, China pays a rebate of only eight or 11 percent against the 17 percent VAT rate. Meanwhile, many countries exempt their exports completely from VAT. If China decides to reduce the tax rebate further to please the USA and Europe, as well as to prevent overheating of the domestic steel market, then the export duty on semi-finished steel exports may also be increased. The most favorable time to announce such tax policy changes would seem to be Friday, February 16, as it is just before the beginning of the one-week long Chinese New Year holiday. The festival period would serve to prevent the occurrence of sharp fluctuations in China's domestic steel industry and economy.

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