Short-term price boost likely to follow Chinese export rebate removal: trade

The cancellation of the value added tax rebate on multiple steel exports from China, announced on April 28 and effective May 1, is going to boost the upward steel price momentum seen in the international trade in the short term, but the longer-term impact will be determined by the actual steel output cut in China and its replacement by imports, market players in the EU, Turkey and the CIS said.

The VAT rebate reduction from 13% for many products, including hot-rolled coil, wire rod and rebar, was anticipated for many weeks and steel price sentiment was buoyed by that.

Steel exporters in Turkey and the CIS were able to sell large volumes of rebar and billet to the Far East markets, where the pricing environment was a lot stronger than in the Mediterranean or the Middle East, partially due to the rebate effect in China.

A trader said the anticipated cancellation of rebate on hot-rolled coil and wire rod had been supporting those markets for some time already. He was surprised that the rebate was not removed on cold-rolled coil, however.

"Considering that [China] completely opened the door to imports and restricted exports, outside of China the effect should be clearly positive, until the new trade balance is established," a mill source in Italy said.

A Turkish rebar producer said he expected no sharp price jumps of $10-$20/mt in rebar as international prices were already high. The market would stay positive, however, he added.

A CIS flat steel producer said the Chinese exporters had already managed to offset the expected rebate cancellation by successfully hiking their prices, which made imports more attractive.

A European trader warned that the steel production in China remained too high for the steel imports to boom now and export to dwindle.

Another European trader said the Chinese move on rebate as a "double-edged sword." Less exports means more steel would stay in the domestic market, which would eventually put steel and raw materials prices under pressure, the trader added. "The bottom line is that China produces more than what it can consume," he said.

What is very likely after China waived the rebate is a push to increase steel prices by producers in many regions, a Turkish trader said. Another trader saw some mills withdrawing their offers in wait for a market reaction to the news.

If the steel export flow from Turkey and the CIS to Asia continues, other markets like North Africa would face more shortages of certain products, for example billet, and the prices would stay very high, a Russian supplier said.

Billet prices in the Black Sea market already hit $600/mt FOB Black Sea this week, driven by China and Southeast Asia.

In addition to scrapping the export rebate, China removed a 2% import duty on billet from non-ASEAN countries. This would improve the competitiveness of major exporters including the CIS, Turkey, India and Iran.