Chinese HRC mills cut export prices, non-VAT traders withdraw low offers amid new tax regulation

Although this week some Chinese HRC mills have still been trying to maintain their offers at unchanged levels, most producers have been forced to go lower as sentiments have been more negative in the local market with domestic HRC prices decreasing as HRC futures prices have failed to rise further. Besides, Chinese non-VAT traders, who were offering their coils at lower levels compared to mills, have withdrawn their HRC offers due to the news about the tightening of tax regulations on China’s steel exports, which means the end of non-VAT steel trading.

More specifically, offers for ex-China boron-added SS400 HRC from large mills have settled at $465-480/mt FOB, against $470-480/mt FOB last week, though, according to a source, “Most big mills including Shagang, Rizhao, Benxi and Baotou have been offering at $465/mt FOB.”

The tradable prices, however, have been fluctuating during the past week, with most offers standing today, Wednesday, April 2, at $465/mt FOB, versus $455-470/mt FOB last week. In particular, ex-China 2,000 mm Q235 HRC offers in Vietnam have settled at $480-485/mt CFR, up by $10/mt week on week. Meanwhile, offers to the Middle East and Turkey have been estimated at $505/mt CFR, compared to $495-510/mt CFR last week. Besides, offers from China for Q195 HRC in Turkey have settled at $500/mt CFR, compared to $485-495/mt CFR reported from traders last week. “Offers from traders and mills are standing in line with each other given the news about new regulations against non-VAT trade, and we believe competition between mills and traders will be tougher in the near term,” a Chinese trader told SteelOrbis.

On March 28, China introduced tighter tax rules and also stepped-up penalties for tax violations aiming to close existing loopholes in export oversight and strengthen tax compliance. "The new policy will have a direct impact on the country’s steel export sector, where the practice of purchasing export license documents for customs clearance to avoid taxes has long been a persistent issue - driving down export prices, reducing tax revenues, and fueling concerns in other countries over potential dumping by Chinese suppliers," a representative of a Chinese mill said.

In the meantime, average HRC prices in the Chinese domestic market have moved down compared to the previous week given the lack of a significant rebound in HRC futures prices so far. In particular, domestic HRC prices in China have settled at RMB 3,430-3,620/mt ($478-504/mt) ex-warehouse on April 2, with the average price level RMB 15/mt ($2/mt) lower compared to that recorded on March 26, but up by RMB 15/mt ($2/mt) since yesterday, according to SteelOrbis’ data.

During the given week, cautious sentiments have prevailed among downstream buyers, resulting in declining transaction activity, which has exerted a negative impact on HRC prices in the Chinese domestic market. The producers’ maintenance works contributed to slight decreases in HRC output, while the slowdown in demand still negatively affects the market. Inventories of HRC have risen, though more slowly, signaling the ongoing oversupply in the market. Uncertainties in the export market have also weakened the market sentiments.

As of April 2, HRC futures at Shanghai Futures Exchange are standing at RMB 3,352/mt ($467.5/mt), decreasing by RMB 34/mt ($4.7/mt) or one percent since March 26, while up 0.24 percent compared to the previous trading day, April 1.           

$1 = RMB 7.1775