Confirmed: China's State Council to end export rebate

Confirmed: China’s State Council to end export rebate

China's State Council approved a plan to cancel the 13% export rebate on billet/slab and adopt a 10% export rebate on long products. The plan takes effect on April 1, 2005. Professional insiders forecast that based on the plan, the profits of Chinese steelmakers may dwindle 7% (RMB 7 billion) in total. The move itself comes as no great surprise to professionals, as it goes in line with China's overall measures to curb the expansion of steel products whose manufacture consumes larges amounts of energy and causes high levels of pollution. Additionally, the plan coincides with the country's policy of protecting its domestic raw materials. China has reduced or even canceled export rebates on strategic resources recently in order to prevent exploitation of the country's rare natural resources. In the fourth quarter of 2004, China canceled export rebates on copper, aluminum and nickel. On January 1, 2005, the 8% export rebate on electro-aluminum and ferroalloy was also canceled. Meanwhile, export taxes have been levied on various other products. One product that China is currently in dire need of is iron ore, and the growing export of billet/slab has only exacerbated the iron ore supply-demand situation. According to statistics data, China realized net billet/slab exports of 2.2 million tons in 2004. The cancellation of the export rebate should constrain China's billet/slab export, which in turn should help to alleviate the tight iron ore supply and stabilize global iron ore prices. Further effects might include an easing of the power and oil supply situation and a reduction in the congestion caused by China's current transportation bottleneck. Differential policy on billet/slab and long products: China imported a total of 29.3 million tons of steel products, including 3.86 million tons of billet/slabs in 2004. At the same time, China's steel products exports totaled 14.23 million tons, of which 6.06 million tons were billet/slabs. This left China with 15.07 million tons of net steel products import and 2.2 million tons of net billet/slab export. China's steel products import can be considered minuscule compared to the country's domestic production of 300 million tons; however, the growing trend of billet/slab export cannot be neglected. The skyrocketing price of billet/slabs in the international market has been the major force pushing billet/slab export in China. At the moment, China mainly exports long steel products such as high strength rebar with vanadium-content and quality wire rod, both of which meet advanced standards in product quality and performance and which enjoy strengthening competitiveness in the international market. At the same time, China has achieved a high rate of self-sufficiency in terms of long products, thus the export rebate on long products has only been reduced at present. A steel industry expert in Shanghai has expressed that global competition will help China to upgrade its long products, thus laying a solid foundation for China's domestic market. Products structure mix improvement: The investment rush in China's steel industry has been curbed somewhat, yet the irrational products structure has led to surplus productivity for billet/slabs, longs and section products. The cancellation of the export rebate on the aforementioned products will help to constrain blind investment and productivity expansion for billet/slabs in China. This in turn will prompt Chinese steelmakers to adjust their industry and energy consumption structures. Experts remind that while the export rebate cancellation is helpful on one hand, it may cause an over-supply of billet/slabs in the domestic market. Such a situation would not be helpful in stabilizing the domestic billet/slab price. At the moment, surplus billet/slab production commonly exists because of China's large billet/slab capacity. In the past, the surplus billet/slab could be exported to ease the domestic market pressure in China and stabilize the price level. Once the export rebate cancellation comes into effect, however, billet/slab exports will be blocked and the surplus billet/slab may not be fully digested by the domestic market. Thus, certain steelmaking enterprises will be forced to cut, possibly even halt, production. This could then lead to mounting manufacturing costs and an overall negative effect on China's steel market.