China has moved to cool its red-hot steel sector by discouraging exports and boosting imports of some feedstock alternatives to buoyant iron ore, steps largely viewed as short-term measures to calm prices.
But there are likely some longer-term implications as well, as Beijing looks at ways to reduce the reliance of the world’s biggest steel producer on Australian iron ore.
Australia is the world’s largest exporter of the steel-making ingredient and meets about two-thirds of China’s import needs, a situation that is likely uncomfortable for Beijing given the ongoing political and trade tensions with Canberra.
China’s finance ministry announced on April 28 that it will remove export tax rebates for 146 steel products from May 1, while waiving import tariffs for some products, including pig iron, crude steel, recycled steel raw materials and ferrochrome.
The end of the export tax rebates may affect about 33.35 million tonnes of steel exports a year, according to Tang Chuanlin, an analyst with CITIC Securities.
This is significant as China exported 53.67 million tonnes of steel products in 2020, and in the first quarter of this year it shipped out 17.68 million, up 23.8% from the same period a year earlier.
If the removal of the export rebates renders Chinese steel products uncompetitive in regional markets, it may result in mills reducing output as they will be reluctant to oversupply the domestic market and thus drive down prices and profit margins.
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