China will increase export duties on high-purity pig iron from 1 August and cancel more tax rebates for flat steel products, to shore up domestic steel supply.
China will cancel value-added tax (VAT) rebates for exports of cold-rolled coil (CRC), hot-dipped galvanised (HDG) steel coil and sheets, electro-galvanised steel coils and sheet, silicon steel and rail steel, the Customs Tariff Commission of the State Council, China's cabinet, said today.
The tax hikes come three months after Beijing cancelled VAT rebates for hot-rolled coil (HRC), cold-rolled sheet and rebar. It also in May zeroed out import tariffs for billet, pig iron and crude steel.
The two rounds of tax changes are part of a policy shift to curb growth of China's 1bn t/yr steel production. Provincial governments have directed mills to keep steel output and exports flat from 2020 levels. State-controlled mills said they have no choice but to follow the policy.
China's steel exports rose by 30pc to 37.38mn t in the first half, at 74.76mn t/yr, about 39pc higher than the 53.68mn t exported in 2020.
CRC and HDG export prices will have to cover the full cost of the 13pc VAT, which was until 31 July is fully covered by the rebate. The rebate cancellations were within market expectations and could lead to higher export prices for CRC and HDG with supply flowing back to China's domestic market.
The market had expected as much as a 20pc export duty on HRC, but Beijing did not add any taxes to HRC. The risk of an HRC tax hike has stalled its spot export trade, providing support to seaborne prices by tightening supply. The Argus fob Tianjin HRC index rose by $57/t, or 6.5pc to $930/t month-to-date. Beijing might be waiting to see whether the cancelled HRC rebate is effective enough to reduce its exports, market participants said.
Beijing raised the export duty for high-purity pig iron to 20pc, after it was raised to 15pc in May. The category with HS code 72011000 has seen an uptick in exports this year. China exported 62,301t of the pig iron with less than 0.03pc phosphorus through June, most of it to Turkey, Japan, South Korea and Taiwan. China exported 1,003t in 2020.
China's efforts to curb its steel output will reduce its demand for iron ore, putting the feedstock's prices under pressure. The Argus ICX 62pc iron ore index fell by $5.90/dry metric tonne (dmt) to $195.90/dmt today, falling below $200/dmt for the first time since 31 May.
China's first-half steel output rose by 11.8pc to 563.3mn t. If China is to zero out its steel output growth in 2021, it will need to slow second-half production by 61.6mn t, or 11pc, to 501.7mn t from the first half to avoid exceeding the 1.065bn t of crude steel produced last year.
