China plans steel export tax as tactic in international iron ore talks

SteelOrbis Shanghai According to reliable indications from both China's government and the China Iron & Steel Association, the government is planning to impose an export tax on certain steel products and on some other exported commodities made in China. Such adjustments in the country's export policies are aimed at trying to resolve many serious problems the government is facing. Some primary steel products such as hot rolled will probably be involved. The plans to impose a new export tax policy on some steel products come against an interesting background. The date of issue is expected to be in early 2007. The ongoing iron ore price negotiations are thought to be a factor having an influence in the timing of the expected announcement . The results of the new round of international iron ore price negotiations are expected to be finalized by April 2007 at the latest. Since the world's iron ore magnates are looking to increase prices again, it is difficult for China to fight back even though both government and local steelmakers have already made great efforts . In this context, the imposition of taxes on exported steel products would inevitably boost the oversupply of steel to the Chinese market and lead to a sharp drop in the demand for iron ore. The policy may therefore be understood as a strong means of threatening the iron ore magnates and of forcing the international prices of iron ore downward. The Chinese steel industry is currently facing a number of serious pressures - oversupply, environmental pollution, disorderly market prices, the continuous price hikes in imported iron ore, increasing antidumping measures in overseas markets, and so on. The Chinese central government had hoped that these problems would be resolved by the market itself without state intervention. However, the situation has seen an aggravation since 2005. In order to maintain the healthy development of China's steel industry, the central government has issued many policies and related measures aimed at restricting overheated investment in steel capacity, at promoting M&A among domestic steelmakers, and controlling the huge rise in steel exports. However, results have not been as good as the authorities expected, even though some positive effects of macro-management have been seen recently. At present, the total daily steel output in China continues to increase. China's steel output is obviously surplus and this trend is expected to continue in 2007. The government is also faced with the problem of ineffective management. Besides internal pressures, the Chinese government is also under external pressures from states that import large quantities of steel from China. Although China's steel exports have been influenced to some degree by the continuous appreciation of the RMB and by the export tax rebate reduction, the effects have nevertheless not been very apparent. The planned export tax for certain steel products shows China's firm determination to lead the market along a path of benign development. If this new policy is put into practice, great changes will inevitably be seen in the Chinese steel market, with the world steel market also being greatly affected.