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Chinese steel supplies will remain competitive despite VAT rebate cut - 24 June 2010

China’s Ministry of Finance has announced that the VAT tax rebates on exports of more than 50 finished steel products will be removed from 15 July. Steel Business Briefing believes that for European buyers, Chinese supplies will remain very competitive; some traders and producers may also look for ways to circumvent the increases in costs.

Among the items to face non-rebated charges are hot rolled sheet and strip, pickled coils, narrow strip, plates, and sections.

Given the overcapacity in China’s steel industry, Rafael Halpin, China Analyst at SBB in Shanghai, comments that “Whilst the new policy will certainly have a negative impact on Chinese exports of steel to Asia, there is little for European steelmakers to immediately celebrate”.

Research by Steel Business Briefing Research & Consultancy, shows that export margins of Chinese HRC to Europe, will remain highly competitive. Following the removal of the 9% rebate currently available for hot rolled coil, export margins will fall by $56/t, and at current prices, margins to North and South Europe will be down to $180/t and $118/t respectively. Export margins above $100/t can be considered competitive, and in the past have still led to growth in export levels to these markets.

Many producers are also expected to circumvent the new regulations by adding boron. This will allow them to continue to claim a 9% rebate, comments Roger Manser, SBB’s managing director.

Export margins are calculated by SBB as the difference between Chinese domestic HRC prices adjusted for transport to port, handling charges and export taxes, and domestic HRC prices in key export markets.


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