No rebate cut decision from China yet

The month of June has started and it looks like the expected announcement of the Chinese government's cutback of the value-added tax refund will be postponed further. The government was initially considering lowering the existing 11% tax rebate down to 5% in order to hold the exports under control. The VAT rebate is a refund given to exporters for encouraging the exports from the country. However, under today's circumstances, the government is not aiming to accelerate exports that forcefully, anymore. Nevertheless, the recent developments on the iron ore negotiations side has had its impact on the process of slashing down the tax rebate on finished products. Therefore, the government seems to have delayed its plans for the tax rebate decline, and now, the tax rebate is expected to go regress to 8%, if ever the government determines to reduce it. At this point, the important thing would be to act cautious not to put too much pressure on the Chinese producers, while aiming to support the industrial development inside. This is where the tax rebate cut issue intersects with the current status of the iron ore negotiations. In case the VAT rebate cut is imposed now, Chinese producers might feel cornered, as their production costs will increase in direct relation to the rise of raw material contract prices. Global iron ore suppliers already agreed on a 19% price increase for this year's contracts with certain European and Japanese mills, and negotiations with Chinese mills are still ongoing. Any interruption of the iron ore supply to the mills will definitely affect their production and sales. On top of that, the VAT rebate cut will make it harder to export, leaving Chinese mills in a less competitive position in the international market. Their profitability taken away, Chinese mills which are mostly state-owned will get negatively influenced and eventually the domestic steel market might suffer from volatility. Another possible duty application, in the form of export duty on semi-finished product appears to be less and less likely to be implemented in the near future. The common belief is that it would be too harsh a decision to make after only a year upon the determination of the VAT rebate of 11% on the exports of this product group. In China there are new rolling mills going on stream which would create an increased internal consumption of the semi-finished products, limiting the export volumes of same.