China wants to cut steel production volume; abolishes export rebates

The Chinese government is keen to reduce steel production volume of China

Putting an end to all speculations on the quantum of rebate withdrawal on steel exports, the Chinese Ministry of Finance and the State Administration of Taxation (customs tariff commission) announced a total abolition of export rebates (13% on VAT) with effect from May1, 2021 on 146 steel items with exception on CR Coil (width>=600 mm) and GP Coil (width>= 600mm) where the earlier rebates of 13% would continue. As higher width CRC and GPC are high value added products that are also demanded for a number of downstream industries like silicon sheets, air ducting, storage boxes, furniture and other consumer durable segments and China wants to hold on, if not increase, the share of the global market for these products.

The products without export rebates would include pig iron, seamless and ERW pipes (all sizes), hollow sections, wire Rods, rebar, PPGI/PPGL coils and sheets, CRS, HRC, HRS and Plates in carbon, Alloy/SS, SS/Alloy bars and rods, round/square bars/wires, structural and flat products, steel sheet piles, railway materials, articles of cast iron.

Elimination of export rebates is associated with abolition of import duties on pig Iron, DRI, ferrous scrap, ferrochrome, MS Carbon and SS Billets to zero with effect from May 1, 2021. In addition, China has raised the export duties on ferrochrome and ferrosilicon from 15% to 20%, on high Silicon steel from 20% to 25% and on foundry pig Iron from the existing level of 10% to 15% from May’21.

There are a few reasons for Chinese actions. First, the government is keen to reduce steel production volume of China. In 2020 the Chinese production of Crude steel at 1053.0 MT was around 5.2 per cent more than the previous year and steel production in China rose despite the pandemic. Chinese steel production reached 271 MT in Q1 of 2021, indicating a growth of 16% over Q1 of the previous year. As China is committed to reduce carbon emission from steel plants significantly in the coming years, the withdrawal of export rebates would prompt Chinese steel producers to turn to the domestic market and thereby disincentivise them from enhancing production by more exports of steel. Secondly, with closing down of IF capacity in the last two years, China is in need of semi finished steel and this objective would be fulfilled by facilitating imports of Billets (carbon and SS). China imported a total quantity of 20.23 MT of steel in 2020, which exceeds last year’s level by nearly 64%. India exported 6.6 MT of semi finished steel in Fy21, out of which China consumed 3.1 MT or 47% of the total semis exports by India.

China’s current export offers for HRC SS 400 stand at $ 939/t fob ex-Tianjin. This is nearly $34/t rise compared to last week’s offer and it may be due to the export rebate withdrawal on HRC. As China is a prime source of steel materials specifically in South, South East Asia and other neighbouring areas, the higher offers resulting out of rebate withdrawal from China would push up global prices of flat products further. This would in turn result in more export realisation for Indian exports of HRC, CRC and Coated products. There is likely to be a rise ranging between $25-30/t in export offers of HRC from India for June’21 shipments. India’s export to the West Asia is likely to fetch a comparatively higher realisation and a corresponding rise in export offers of CRC.

The overall push to higher prices in the global market would imply that there would be a lower import flow of flat products in the coming months. India has ended the fiscal year FY21 with a total export of 17.4 MT and a total import of 5.04 MT. The flat component in total finished steel exports were 87 per cent . The relatively higher price rise in flats compared to long products has benefitted all flat steel exporters from India. The flat component in total exports in the current fiscal would be further strengthened.

(Views are personal)