The latest news about the tightening of tax regulations on China’s steel exports will have a significant impact on overall trading volumes and on prices for major steel products from the world’s biggest steel exporter. SteelOrbis has collected opinions from market players regarding the impact of this latest development on steel exports from China this year.
On March 28, the State Taxation Administration, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, and the State Administration for Market Regulation of China issued a joint announcement on Matters Relating to Optimization of Services and Standardized Management of Export of Goods Subject to Domestic Circular Taxes. The most important purpose of the announcement is to target the export of steel at low prices and curb tax evasion.
According to the new regulation, customs declarations will be strengthened, which will require exporters to conduct tax registration checks, aiming to eliminate tax evasion. Meanwhile, the crackdown on fraudulent export practices will also be tougher and companies involved in such activities may face criminal liability.
Previously, the market had already faced tight inspections in April 2024, aiming to cut non-VAT trading, but, when no strict official regulation was announced in May 2024, as had been expected, business returned to its previous conditions. “But this time the situation is different. I think they are applying a new software customs system. Everything will be registered online now,” a market source commented. A few major Chinese traders polled by SteelOrbis have confirmed that the era of non-VAT trading now seems to be over.
Impact on prices
Low-priced steel exports have long been an important factor affecting China's trade relations with other countries. China eliminated steel export tax rebates in 2021, while many exporters adopted the so-called “proxy export” model, keeping export prices at low levels, leading to tax losses in China and dumping concerns in relation to Chinese steel suppliers in other countries.
Through stricter supervision and transparent compliance processes, the new regulations are intended to restore other countries' trust in the Chinese steel industry and to promote the competitiveness of quality steel products in the international market, according to the official position of Beijing.
The impact on prices has already been seen, even though the official online customs system will fully enter into operation from May 1. While back in 2022 the price difference between some contracts for non-VAT and VAT trade reached up to $50/mt, the market adjusted later and in 2024, including the recent situation in early 2025, the difference between prices from large mills (for HRC and wire rod) and traders’ non-VAT offers was mainly in the range of $10-20/mt. This difference will not exist from now on, with an automatic increase in traders’ prices. “VAT prices are around $15-20/mt more expensive [for wire rod]. And so, if cracking down [on non-VAT business] is successful, overseas buyers will have to contend with higher prices,” a Singapore-based trader said.
However, the market will hardly see an uptrend in general for Chinese steel export prices, based on large mills’ prices, considering the still insufficient local demand in China and the challenging export conditions. According to a market source based in China, “The recent news will surely have an impact. It will take some time for the market to find a new balance… But Chinese origin HRC and wire rod will still be competitive globally.”
The changes in the price trend are mainly expected in the second half of the current year, if China also proceeds with cutting steel production, which will bring more balance in terms of volumes. In early March, China announced that it planned to cut steel output and implement a reorganization of the steel industry. So far, the specific reduction in steel output volumes has not been disclosed, while market players predict that China may reduce steel output in 2024 by up to 50 million mt year on year. Though this seems too ambitious, a reduction of at least 20 million mt is expected in 2025, according to market sources polled by SteelOrbis. The output reduction policy, complemented by the new regulations jointly issued by several Chinese government departments, may further promote the steel industry's transition to high-quality development and improve industrial competitiveness.
Impact on volumes
“The major volumes [in non-VAT business] that will be impacted are in HRC and wire rod. For CRC, GI, etc., there are also non-VAT trades, but not so much,” a Chinese trader said, while there will be no impact on semis exports, according to sources.
According to unofficial information, non-VAT exports of HRC from China accounted for around 30-50 percent of total HRC exports in 2024, and to some destinations, like Turkey, the share of non-VAT trading has been as high as 75-80 percent up to now. China’s steel sheet/plate exports totaled 74.66 million mt in 2024, up 25.2 percent year on year, according to the Chinese customs authorities.
As for wire rod, in the first half of 2024 non-VAT exports accounted for a share of over 50 percent. Subsequently this share declined, but the overall sales remained significant. In 2024, wire rod exports from China amounted to 2.62 million mt, up 7.8 percent year on year.
Though the impact of the new regulations on volumes coming from China is obvious, market sources do not predict a sharp drop in China’s general export sales from now on, based only on the latest news. According to a major Chinese mill, competition between mills and traders will be tougher, but exports of finished steel are “necessary” taking into account the current state of the Chinese economy.