China to end rebates for cheap steel exports
Tue March 29, 2005 10:46 AM GMT+02:00
By Lucy Hornby
SHANGHAI (Reuters) - China will slash or abolish export tax rebates for some low-end steel products to curb iron ore and power usage in the world's top steel market, in a move analysts say may calm fears of cheap metal flooding the globe.
China -- which became a net exporter of steel products in the final months of 2004 -- would remove a 13 percent rebate on steel billets, a government official told Reuters on Tuesday.
The rebate on long products -- typically, rods and bars for construction -- would be reduced to 10 percent from 13 percent, said the official at the tax policy office of the State Council, or cabinet.
The measures will take effect from April 1, a senior Hong Kong-based shipping executive told Reuters.
"This kills two birds with one stone: it curbs excess capacity in China's low-end steel industry and avoids the potential of trade wars due to rising exports of such products," said Cai Haihong, an analyst at Merchants Securities.
"With tax rebates cut or abolished, low-end steel producers will have to either reduce exports or hike their prices on the international markets, weakening their competitiveness."
The move is expected to discourage exports, though it might not be enough to prevent some manufacturers from trying to profit from global prices that are 20 to 30 percent higher than in China, on average.
China's growing surplus in lower quality steel products threatens to spill out and pressure prices worldwide -- a prospect that has undermined the performance of steel stocks from number-two producer Arcelor SA to U.S. Steel Corp..
Beijing had been expected to curb tax rebates on exports of cheap steel after major suppliers from Companhia Vale do Rio Doce to Rio Tinto Ltd./Plc. raised iron ore prices by 71.5 percent from April 1.
The country is trying to cool overheated economic growth and had been pressuring smaller, inefficient steel plants to merge, while encouraging its flagship mills to develop production of higher quality steel products.
Tax rebates make exports of some semi-finished steel products profitable because they are large relative to the value of the export, the shipping source added.
LOW-END SURPLUS
China's steel industry is divided among more than 100 relatively small producers, whose expansions helped boost the country's output by 23 percent to 273 million tonnes in 2004.
The country's steel imports fell 21 percent last year to 29.3 million tonnes while exports doubled to 14.23 million tonnes, official data showed.
China also became a net exporter of steel billets for the first time in 2004, as exports of 6.06 million tonnes exceeded imports of 3.86 million tonnes. Billets are semi-finished products used to make long products for the construction sector.
In the past six months, even small steel mills have become exporters, sending products as far afield as Italy and the United States, the shipping official told Reuters.
The rebate changes should have little impact on China's three biggest producers -- Baoshan Iron and Steel Co. Ltd., Angang New Steel Co. and Wuhan Iron and Steel Co. Ltd. -- because they focus increasingly on high-end products, analysts said.
Average prices of low-end construction steel in China were only about 1 percent higher in late March than a year earlier, reflecting capacity increases and slowing demand from construction.
In contrast, prices of high-end hot-rolled steel had jumped 18 percent, and those of even higher-end cold-rolled steel surged 28 percent, analysts said.
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