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China’s steel market welcomes tax rebates increase

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Update time : 2020-03-26 16:49:12
Chinese steel market participants welcomed Beijing’s Thursday announcement that tax rebates on certain export products including many steel and steel-related products will be raised from March 20, according to opinions canvased by Mysteel Global on Wednesday. Many respondents believed that larger tax rebates would increase their price competitiveness and boost business in the longer run, however, rather than in the short-term.

China’s Ministry of Finance (MoF) announced late on March 17 that it will raise the tax rebates on 1,084 export goods to 13% and on 380 items to 10% from March 20. The central government’s move is to help Chinese foreign trade enterprises now being seriously gripped by the global spread of COVID-19 and the impact this is having on national economies and consumer spending worldwide, as reported.

Steel products including stainless steel, alloy steel and steel pipes, and end products made of steel such as kitchenware are among the 1,084 items to enjoy 13% rebates. Currently, these steel products are mostly rebated at 9% or 10%, depending on their categories or specifications.

“This will surely bring benefits to our export business,” an official from a steel mill based in Central China’s Henan province said firmly, admitting that he had anticipated such an official announcement since Beijing had indicated several days earlier a plan to boost rebates was being considered.

More rebates, lower export prices, increasing price competitiveness

With larger rebates, Chinese steel exporters will have more flexibility to cut their export prices further and thus lift the competitiveness of China-origin steel products internationally, market sources generally agreed.

“This (the increased rebate) could leave room for a $10/tonne cut on export prices for Chinese hot-rolled coil, for example,” a Beijing-based steel analyst maintained.

“Certainly, it will increase our competitiveness with major competitors such as South Korea and Japan in this aspect,” he said. Nevertheless, he remained cautious, admitting that he wondered just how much material help a $10/t cut would provide. “The Japanese and Korean mills may lower their prices accordingly, due to their weak domestic demand.”

Over March 7-13, Mysteel’s export benchmark price of SS400 4.75mm HRC was $456/t FOB Bayuquan port, Northeast China’s Liaoning province, while last week, HRC from Japan for May shipment was heard traded at around $465-470/t CFR Vietnam.

China’s stainless steel exports may increase in the long term

The newly announced export rebates policy is expected to encourage domestic stainless suppliers to seek more opportunities in overseas markets when domestic demand remains lacklustre, sources in China’s stainless sector stated.

“The rise in tax rebates could enhance the price-competitiveness of Chinese stainless products and China’s stainless export volume may also see some improvement in the longer term,” a stainless trader in Macao agreed.

Yet, he stressed that the effects of the new policy may not appear soon, certainly not in the coming one or two months, as the outbreak of COVID-19 in other countries and regions including Japan, Korea, Europe and North America has seen local transportation being blocked and demand weakened. Overseas buyers of stainless cold rolled sheet for fabricating into cookware, for example, will see their needs shrink as many department stores and retail outlets are closed for the moment to combat the spread of the virus. “Our export orders have already slipped recently compared with late February,” he admitted.

Stainless steel products included in the latest round of tax rebate increases include strips, welded pipes and tubes, wires and beams. China exported 674,500 tonnes of such products in 2019, accounting for 18.4% of China’s 3.67 million stainless steel exports in total last year.

Demand remains central for China’s steel exports

Though the rebate rises may see Chinese steel products gain some advantage in foreign markets, the fundamental factor determining the vitality of Chinese steel exports for the immediate future is still demand, Chinese market sources stressed, noting that the spreading COVID-19 contagion is severely undermining consumer sentiment globally.

“Without the cooperation of the external market (global steel demand), adjustments to China’s internal policies such as the increased tax rebate alone would not have much effect,” the Henan mill official admitted.

The global steel market has quiet appreciably recently amid worries over COVID-19’s impact on business operations, production activity and transportation.

“Buyers are cautiously watching the trend and are hesitating to place orders. Clients from the Middle East and Southeast Asia are seeking delayed shipments (from Chinese mills) amid concerns over local steel consumption,” observed a Beijing-based market watcher.

“Chinese steel export prices declined significantly after the Chinese New Year holiday (over January 23-February 2 this year), which boosted export orders for February. But both the actual transactions and inquiries slumped recently given the rapid spread of the virus,” a Shanghai-based steel exporter told Mysteel Global.