China wants to cut steel production volume; abolishes export rebates

Putting an end to all speculations on the quantum of rebate withdrawal on steel exports, the Chinese Ministry of Finance and the State Administration of Taxation (customs tariff commission) announced a total abolition of export rebates (13% on VAT) with effect from May1, 2021 on 146 steel items with exception on CR Coil (width>=600 mm) and GP Coil (width>= 600mm) where the earlier rebates of 13% would continue. As higher width CRC and GPC are high value added products that are also demanded for a number of downstream industries like silicon sheets, air ducting, storage boxes, furniture and other consumer durable segments and China wants to hold on, if not increase, the share of the global market for these products.

The products without export rebates would include pig iron, seamless and ERW pipes (all sizes), hollow sections, wire Rods, rebar, PPGI/PPGL coils and sheets, CRS, HRC, HRS and Plates in carbon, Alloy/SS, SS/Alloy bars and rods, round/square bars/wires, structural and flat products, steel sheet piles, railway materials, articles of cast iron.
 

Elimination of export rebates is associated with abolition of import duties on pig Iron, DRI, ferrous scrap, ferrochrome, MS Carbon and SS Billets to zero with effect from May 1, 2021. In addition, China has raised the export duties on ferrochrome and ferrosilicon from 15% to 20%, on high Silicon steel from 20% to 25% and on foundry pig Iron from the existing level of 10% to 15% from May’21.

There are a few reasons for Chinese actions. First, the government is keen to reduce steel production volume of China. In 2020 the Chinese production of Crude steel at 1053.0 MT was around 5.2 per cent more than the previous year and steel production in China rose despite the pandemic. Chinese steel production reached 271 MT in Q1 of 2021, indicating a growth of 16% over Q1 of the previous year. As China is committed to reduce carbon emission from steel plants significantly in the coming years, the withdrawal of export rebates would prompt Chinese steel producers to turn to the domestic market and thereby disincentivise them from enhancing production by more exports of steel. Secondly, with closing down of IF capacity in the last two years, China is in need of semi finished steel and this objective would be fulfilled by facilitating imports of Billets (carbon and SS). China imported a total quantity of 20.23 MT of steel in 2020, which exceeds last year’s level by nearly 64%. India exported 6.6 MT of semi finished steel in Fy21, out of which China consumed 3.1 MT or 47% of the total semis exports by India.