As market players expected, China's Ministry of Finance has announced that effective from July 1 the value-added tax (VAT) rebate for welded steel pipe and tube will be reduced to zero.
In response to international pressure concerning China's huge trade surplus and subsidies on some types of steel products, China decided to get serious and eliminated the VAT rebate and added an export tax to various steel products. However, pipe and tubing appeared to have escaped from this change until now. This week, China made a new announcement to terminate the VAT rebate for welded pipe and tubes. As of July 1, 2007, the VAT export rebate for square, rectangular and circular tubes will be reduced to zero from its current 13 percent.
More restrictions for Chinese tube exports are always possible in the future. One can't help but wonder if Chinese steel tubing will later take a beating such as other structural products like merchant bars and beams did earlier this month when a 10 percent export tax was added.
The 13 percent VAT rebate was roughly an $80 /mt ($3.63 cwt. or $73 /nt) incentive for tube exporters which they will no longer be able to collect.
Not all of the $80 /mt ($3.63 cwt. or $73 /nt) can be passed on to customers immediately but the new legislation change has pushed China's offering prices up another $0.50 cwt. ($11 /mt or $10 /nt) since our last report two weeks ago. This increase is not enough to cover the VAT rebate decrease so more increases are strongly expected for Chinese hollow section offers. One factor which could help to avoid a steep increase is the soft Chinese flat rolled market. Prices of hot rolled coils in China have been coming down sharply in the last couple of weeks.
Current hollow section offering prices from China now range from $33.00 cwt. to $34.50 cwt. ($728 /mt to $761 /mt or $660 /nt to $690 /nt) FOB West Coast, approximately $0.50 cwt. ($11 /mt or $10 /nt) higher on the Gulf Coast. East Coast discharge is roughly another $0.50 cwt. ($11 /mt or $10 nt) higher than the Gulf Coast
Turkish offers to the US are still on the high side with little to no takers. The flat rolled market in this region is still soft making raw material prices slightly lower; however, freight rates have increased, offsetting the lower priced flat-rolled, keeping offering prices stable from our report of two weeks ago.
Import offers from Turkey are still in the range of $36.50 cwt. to $38.00 cwt. ($805 /mt to $838 /mt or $730 /nt to $760 /nt) FOB, loaded-truck, US Gulf Coast ports.
As for the domestic market, hollow section prices have fallen by approximately $1.00 cwt. since SteelOrbis last reported. Demand is sluggish and inventories are at a moderate to high level at service centers. Larger sized tubing is stronger, but market players question how long it will last as there are signs of the non-residential construction market slipping as well. Additionally, flat rolled prices are on a downward spiral and do not look like they will be recovering in the near future.
For the time being, domestic hollow section prices range from $40.00 cwt. to $42.00 cwt. ($882 /mt to $926 /mt or $800 /nt to $840 /nt) for A500 grade A and grade B hollow sections up to 6" in the Midwest region. The pricing trend is slightly down as prices are expected to slip a little further in the near future.