China considers new measures to regulate its steel industry

The Chinese government is planning to issue new policies and measures in order to curb the sharp rising trend which has been observed in steel product prices. The government is worried that the steel industry may come under the burden of increased cost pressure due to a probable sharp price hike resulting from the 2008 iron ore price talks. The Chinese government is first of all considering the cancellation of all remaining VAT rebates for steel exports; this is the measure subject to the most speculation. For the purposes of improving environmental protection and reducing the total steel export quantity, the export rebate for high-end steel products such as cold rolled steel and coated products may be cancelled. Furthermore, the existing export tariffs on certain steel products, currently in a range of 5-10 percent, may be increased to 20-25 percent. If these measures are actually implemented, the export price of Chinese steel will inevitably rise, more products will be oriented to the domestic market, thus increasing the market pressure.. China's government also aims to limit the number of exporters operating in the steel business. According to approximate statistical data, there are over 12,000 companies engaged in the steel export business in China. Stimulated by the remarkable profits and free of restrictions, many newcomers have entered the steel export business in recent years, thereby facilitating the export boom. China's Ministry of Commerce is drafting new rules to reduce the number of steel exporters. The key content of the rules is the criterion of an export threshold of 30,000 tons per year. Exporters whose annual steel product exports are less than this cut-off point will be swept out by the new rules. According to rough calculations, the number of qualified steel exporters could decrease to around 200, consequently having an important impact on China's steel market. In another measure, more to do with the cost side of the steel industry and which has already actually been implemented, the China Iron and Steel Association (CISA) has stipulated that all iron ore traders are obliged to sign iron ore sales contracts with their local Chinese buyers before importing iron ore into the country. The aims of this measure are to eradicate disorder in iron ore imports and to reduce serious fluctuations of spot prices. However, this regulation has not been properly implement so far. The CISA recently stated that it would be putting greater emphasis on the strict enforcement of this regulation in the near future.