Probable effects of China's new export tariffs

The Chinese central government authorities announced on October 28, 2006, the imposition of a 10 percent export tariff on semi-finished products, mainly billets, as well as on around 30 ore types and steel products. According to the announcement, in addition to the export tariff, the import tariffs on certain coal types, which varied from three to six percent, have been reduced to the 0-3 percent range. It is reported that China's domestic market has not shown any evident reaction to the new tariffs which will come into force on November 1, 2006. The common expectation in the market is for a decrease in exports and also a decline in domestic billet prices. As a result of the reduction in billet exports, an increase in wire rod and rebar exports is predicted. If that happens, then the government is expected to reduce the tax rebate on finished steel exports once again. Meanwhile, some market players think that reducing billet exports will not have a very obvious impact on long steel prices and exports, because monthly rebar production in China is seven million tons, whereas total billet and slab exports amount to one million tons. Besides, the percentage of 20MnSi grade billet exports of the total figure is less than that of Q235 grade. According to market reports, because billets not cleared by customs before November 1, 2006 are subject to the new tariff, there is a problem regarding approximately 500,000 metric tons of billets - the deals for which have been concluded but which have not been shipped yet. In addition, it has been reported that the China Iron and Steel Association (CISA) is attempting to set up a controlling mechanism by determining a quota for each mill regarding exports to Europe. This mechanism is planned to be put into effect in 2007.