China plans to further lower the export rebate on steel products

SteelOrbis Shanghai According to sources close to the Ministry of Commerce, the ministry held a meeting with steel mills on April 2, 2006, aiming to lower the export rebate on steel products by 3 percentage points to 8 percent from the previous 11 percent. The Ministry of Commerce asked the steel mills to make financial analysis to predict the potential influence of this plan. Another meeting is scheduled to be held on April 8 to determine the implementation date. If the plan gets the green light on April 8, the formal policy will be announced within one or two months. Therefore, the implementation date is estimated as May 1 or June 1. On March 1, 2005, the Chinese government had abolished the export rebate on semi finished steel products. Furthermore, on May 1, 2005, China decreased the export rebate on finished steel products by 2 percentage points to 11 percent. After the implementation of this policy, the export growth rate of semi finished steel in the entire 2005 sharply went down to 16.7 percent, much lower compared with the 312 percent growth rate in 2004. In Jan-Feb 2006, the export growth rate saw 57.6 percent year on year decrease. The government achieved its goals. However, steel exports continued keeping a rapid growth with 44.2 percent increase in 2005, and they have also remained high in the first two months of 2006. The large export volume of iron and steel products has an adverse influence on China. First of all, it impacts the international market and it may cause to trade disputes easily. Secondly, it has a large share in environmental pollution. Thirdly, it causes to higher domestic iron and steel prices, thus to higher costs for infrastructure, influencing the international competitiveness of the steel consuming industries. The Chinese government wants the iron and steel industry to meet the domestic demand and balance the import and export. This upcoming export rebate policy will decrease the steel exports to a certain degree. The policy will have different impacts on the international and domestic market; with more pressure on the domestic market prices, while supporting the international market prices.