| Trade Issue | ||
| Export tax change tips in favor of steel sector - Mysteel - 18 Nov, 2008 | ||
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China has declared November 12 to further raise up the export tax rebate for commodities shipment and readjust the export tariffs for some products, incl. the tax removal for certain steel products, effective as of December 1st . Market participants flied in hot discussions, and it is widely expected that the move would have limited effect on domestic steel sector, and unable to turn around the current sluggish market. Mysteel analyst Mr Liu Yuan has presented a brief analysis on the influence of the move below. Liu believes the move has an active role for steel export and domestic market as well. 1. The move would help boost market confidence. Domestic steel prices have plunged since June and most mills reported profit loss since September sets in, with some medium-and-small mills have idled whole operation or closed. And its the best timing for the move since steel prices have halted falling and it remains unclear where the market would fare in days to come, and it would help prop up market confidence and stabilize market prices. We should not pay much attention to how much profit the policy would bring for us, but the positive effects the resumed market confidence would impose on steel market, Liu suggested. In addition, the readjusted export taxes will stimulate steel shipment more or less, and mitigate market pressure at home. Beijing would further lift up the export tax rebate for labor-intensive, electromechanical and other products that suffered the most in the economic turbulence since December 1st. So far, a total of 3,770 products have been covered in the move, accounting for 27.9% of the total export products. The move would alleviate the export pressure for down-stream steel-consuming sectors, and thus drive up steel shipment indirectly. And the period for overall steel market to warm up is expected to be shortened markedly bolstered by the direct and indirect preferential policies. A series of stimulus plan and supportive measures hammered out recently would help spur investors' enthusiasm for new projects. And the active stock market is poised to help release end-users' consumptions, leading to down-stream revival. 2. The move would benefit steel mills directly. Lifting up export rebates and lowering taxes are set to help lower steel mills' export costs. Take HRC for example, the policy would reduce export cost by CNY 170 per tonne for HRC, which suffered 5% export duty earlier. Domestic mills would desperate to rush out shipments in light of the weak home market and large price spread at home and abroad. And the move is estimated to cut monthly export cost by over CNY 0.3 billion. 3. The move would help maintain the big price gap between home and global markets. Price gap between domestic and international markets in Nov has narrowed from the previous month due to falling steel prices resulted from deteriorating economic turmoil in EU and US in the past month and the vibrating domestic steel prices. And the gap is slated to continue until the bullish signs in economy appear. Therefore, the export tax change would help keep Chinese steel products' price competitiveness in global market. 4. Steel export tonnages would hold over 4m tons in near future. Global demand has sharply contracted due to US led economic recession, and Chinese steel mills report plummeting export orders in October Owing to big price gap of USD 327 per tonne on November 12th between home and US market, there is still large space for home mills to lower export prices, therefore, home mills could give up some profit to secure more market shares. China's steel shipment has fallen 31% MoM to 4.62 million tonnes in October due to weakening demand. However, the crisis has halted further worsening since countries across the world have taken bailout plans. In light of this, Mr Liu predicts that domestic steel export is still likely to stay over 4 million tonnes in the coming months compared with the lowest export of 3.1 million tonnes in February this year when the price gap registered negative for most steel products. Mr Liu said its the appropriate timing for the central government to adjust export taxes, and which is in line with the current economic situations. He said that market participants should not expect the policy to last long given China's heavy reliance on foreign iron ore, the pressure of anti-dumping and home energy-saving and emission-reduction efforts, etc. And Beijing is unlikely to take similar measures once the economic situation stops worsening. It's the long trend to scrap export tax rebate gradually in the long-run. (Sourced from MySteel.net) | ||
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