China Looks to More Export Tariffs to Tame Booming Steel Sector

China is considering imposing more tariffs on steel exports as it seeks to achieve twin goals of capping domestic production and taming the surging prices that have fanned concerns about inflation. Futures dropped.

Potential rates being discussed range from 10% to 25% and products include hot-rolled coil, according to two people familiar with the matter, who asked not to be identified because they’re not authorized to speak to the media. Officials are seeking to implement the levies in the third quarter, though they’re still subject to final approval, one of the people said.

The world’s biggest steel industry already scrapped rebates on export taxes and raised tariffs on some products from the start of May to keep more supply at home. The new levies will target some products not covered by the earlier round, according to one of the people.

China’s customs agency didn’t immediately respond to a fax seeking comment on the plans. Hot-rolled coil fell 0.8%, while rebar also declined and Chinese iron ore futures dropped 2%.

“The message this sends the market is that moral hazard exists among Chinese flat steel producers, who might be tempted to ignore government mandates given extremely wide margins,” said Atilla Widnell, managing director at Navigate Commodities. We expect any flat-rolled steel exporters in China would be able to cope with a tariff of up to 20%, though it would hurt smaller, higher marginal cost producers, he said.

China is the biggest steel exporter and is undertaking an industrial overhaul that’s seen it vow to reduce output in 2021 to curb carbon emissions from one of its dirtiest industries. The move to concentrate on domestic supply comes after resurgent demand lifted prices to a record earlier this year, and may tighten global markets that are seeing a steel boom as economies navigate their recovery from the pandemic.

Markets outside of China are enjoying the greatest steel rally in a generation, with prices in Europe and North America toppling records as governments focus on stimulus and infrastructure spending. Plants are straining to boost supply after laying dormant during the pandemic, and Western producers aren’t keen to expand capacity after weathering years of low prices and painful shutdowns.