On the first Monday of 2015 when Chinese steel market opened varied reactions started to pour in from various market players and analysts about the implications of Chinese government’s decision to withdraw VAT rebate on exports of some of the Boron added items wef January 1st 2015 in their drive to conserve natural resources
Data from the China Iron and Steel Association showed that more than 90% of additional output in the first half of last year was diverted to foreign markets, shielding many vulnerable mills from the impact of a slowdown in demand.
China’s steel exports have surged by 46.8% during January to November 2014 to 83.6 million tonnes and the yearly volume is expected to be 90 million tonne plus. Steel export shipments in November 2014 increased 14% MoM to 9.72 million tonnes after 8.55 million tonnes in October and 8.52 million tonnes in September 2014.
Chinese mills boosted steel exports in 2014 as their domestic demand growth reduced due to new Norm of Chinese economy of about 7% by adopting aggressive pricing strategy using Boron added route to circumvent export taxes on some items as well as to avail VAT rebate. But this decision changes the whole game and it would be interesting to see that how Chinese mills adopt to the new scenario as Boron added steel accounted for more than 40% of the total exports as per industry estimates. It is heard that mills are already looking to exploit other loopholes
Ms Yu Yang, a Shanghai-based analyst at Shenyin & Wanguo Futures told Reuters “Chinese steel mills have already foreseen changes in the rebate policy that should go into effect this year, and they started substituting boron with other alloys such as manganese and chromium steel. Boron is the cheapest alloy, manganese and chromium are a bit more expensive.”
Morgan Stanley analysts said in a note on Monday that the cost of switching from boron to chrome would be around CNY 40 (USD 6) per tonne, far lower than the rebates on offer.
Mysteel said the rebate cancellation could cut exports by a third in the first quarter of 2015, but it could be offset by new rules aimed at encouraging higher end exports. It added that even without the rebate, Chinese steel prices remained far lower than prices overseas
On the other hand Custeel said that the removal of a tax rebate on boron steel exports will cut Chinese shipments by as much as 25%, worsening oversupply in the domestic market which is already down by almost 30% YoY.
Zhejiang Yaang Pipe Industry Co., Limited