China: Steel rebate cut to slash exports

 

Leveraging our in-depth steel research, we forecast the potential impact on exports, production and prices.

At the turn of the year, China removed the VAT rebate on exports of some boron-added steel products - including hot-rolled wire rod, bars, plate and narrow strip.

These four products accounted for almost a third of total steel exports between January and November last year. In line with our Q4 2014 forecast, we believe the removal of the rebate will reduce finished steel exports, with volumes dropping from 94Mt in 2014 to 80Mt in 2015.

China Steel Charts

As exports were responsible for nearly all net steel production growth in the past twelve months, any reduction will lead to further deceleration. We currently forecast growth of 1.4% this year, compared to 3% during 2014.

China Steel Charts

The removal of the rebate is also likely to push up international steel prices as Chinese exporters will find it difficult to maintain the low offer prices without the tax rebate.

We expect this new policy to have a big impact on steel exports and production over Q1 as steel exporters begin to adjust their strategy.

However, steel mills do have other options to maintain the rebate rate – by adding chromium for example.  For although adding other alloy contents is not as cheap as adding boron, it is still much more economic than exporting rebar and wire rod of carbon steel with the current 15% export tax.

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We span the full value chain – from raw materials (iron ore and metallurgical coal) to finished steel – applying a consistent methodology to our data at every stage.

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