CISA suggests higher tax refund for scrap buyers to improve iron ore pricing mechanism

Monday, 01 February 2021 17:44:38 (GMT+3)   |   Shanghai

Luo Tiejun, the vice president of the China Iron & Steel Association (CISA), has suggested preferential tax policies, aiming to stimulate domestic supply and imports of steel scrap to satisfy the increasing demand in China.

For instance, the refund rate of the 13 percent value-added tax (VAT) applied on domestic prices could be increased. Currently, China’s tax authorities refund 30 percent of the VAT paid to buyers, while Mr. Luo said that the government could consider increasing the refund rate to 70 percent. The cost of purchasing steel scrap may decrease, which would encourage steelmakers to use more scrap as raw material. He said that the CISA believes that the move of increasing the supply of other ferrous materials is the key to improving the pricing mechanism of iron ore.

In 2020, iron ore prices rose sharply, with this considered to be “an irrational rally”, according to Luo, who said the support from demand, pressure by miners, and speculation in the futures market were the main factors contributing to the rally. Accordingly, Chinese steelmakers are calling for an improvement to the pricing mechanism for iron ore, Luo stated.

In addition to these key suggestions, the CISA official also made other suggestions. First of all, increasing delivery varieties in the futures market. Currently, Dalian Commodity Exchange (DCE) has been implementing several measures to curb sharp price changes. Secondly, he said he hoped that major miners in the global market could increase the supply of iron ore in the spot market for trading at the major platforms COREX and Global Ore. Thirdly, Luo said, COREX could consider an increase of the transaction volumes of iron ore. In 2020, the transaction volume of iron ore via COREX exceeded 62 million mt, up 89 percent, with 460 member enterprises, up 115 percent, year on year. “If the transaction volume of COREX could exceed 100 million mt, steelmakers and miners could use its prices as the reference price for long-term agreement prices,” Luo said.

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