The indications are that the Chinese government is giving careful consideration to further adjustment of the export tax rebate for steel. Although China's local steel market has been on a continuous sliding trend since June, anticipation of the export tax rebate adjustment - though not yet officially confirmed - was the main factor behind the very strong decline in China's local market last week.
Chinese customs data show that China's steel exports in July reached 7.21 million metric tons - an all-time monthly record - up nearly 21 percent year on year and up 38 percent compared to the previous month. Of this volume, exports of semi-finished steel products reached 230,000 mt, almost equal to the total semis export amount of the previous several months taken together.
It appears that China's steel exports have stepped up into a higher gear again and, as a result, the Chinese government is likely to take swift action in order to bring this trend under control. However, the above export figures for the month of July are somewhat deceptive.
Let's look more closely at the background of the above figures for July.
Firstly, the strong surge in steel exports in July is not the result of an increase in demand from the overseas markets. On the contrary, two key domestic factors in China can account for the soaring figures:
1. The Olympic Games.
It was well known that for the August Olympic Games China would implement very strict controls and supervision of traffic and cargoes. This meant that considerable export quantities were expected to be blocked or delayed in August. Thus, to export in advance in July seemed like a good alternative for most exporters.
2. The unconfirmed date of adjustment of the steel export tax rebate.
Previously, there had been a rumor in the local market that the state was to further adjust downward the steel export tax rebate and increase the export tariff rate from the first day of August. Many players in the market believed such reports and chose to accelerate their exports before August.
Secondly, the 38 percent monthly increase rate for July is based on the low export level recorded for June, when China recorded total steel exports of 5.22 million metric tons. This considerably low level derived from the slide seen in world demand for steel. Calculating the monthly increase rate on this basis, the export figure for July appears magnified out of all proportion.
For the above reasons, it is not reasonable to make a case for a swift adjustment to the export tax rebate using the July export surge as the main basis. However, to control and restrict total national steel output is a task already on the agenda of the Chinese government. Indeed, this seems to be a necessary measure against the increasing possibility of monopolization of international iron ore supplies. Thus, taking the longer view, further restriction and adjustment of China's steel exports is inevitable.