Economy of Japan

Mainland may end VAT rebates on steel exports

PUBLISHED : Saturday, 29 September, 2007, 12:00am
UPDATED : Saturday, 29 September, 2007, 12:00am

The central government is mulling scrapping value-added tax rebates on steel exports altogether and raising the tariffs on some products, in a bid to further rein in exports of the alloy whose production is energy-intensive and pollution-prone, according to state media.

The move would also help relieve some pressure on the mainland to rein in its huge trade surplus and shore up its bargaining position before upcoming negotiations on iron ore imports, analysts said.

At a meeting hosted by the China Iron and Steel Association to discuss the steel sector's export outlook, it was revealed that the National Development and Reform Commission had proposed cancelling all export rebates and raising export tariffs on some products to between 15 per cent and 25 per cent, China News Agency quoted a participant as saying.

A commission spokesman could not be reached, while a spokesman for the State Administration of Taxation declined to comment.

Since April 2005, Beijing has cut most steel products' export rebates from 13 per cent to 5 per cent to discourage over-expansion of production capacity for low-end products and spur higher value-added activities. It last cut steel export rebates on July 1.

It also slapped tariffs of up to 15 per cent on exports of low-end products such as steel billets and slabs.

'China doesn't want to export energy-intensive products as it is short of energy, and steel exports are one of the top trade surplus earners for China in this year's first half,' said DBS Vickers Securities analyst Helen Wang.

Export of steel products surged 83.9 per cent year on year to 45.08 million tonnes in this year's first eight months, while that of steel billet climbed 10.7 per cent to 5.6 million tonnes, according to customs figures. However, steel exports last month had fallen to their lowest level since March at 5.38 million tonnes, down from 7.16 million tonnes in April, as a stepping-up of export-discouraging policies since last year took effect.

A spokesman for Angang Steel, the listed unit of the mainland's third-largest steelmaker, said even if the mooted policies were implemented, it would not pose a significant impact on the industry as strong domestic demand would absorb output intended for exports.

The company, which derived a quarter of its earnings from exports in last year's first half, would be 'somewhat affected', the spokesman added.

Ms Wang expected steel prices to remain at high levels, supported by domestic demand and raw material and energy cost pressures.

Mainland steelmakers, led by the largest producer Baosteel Group, are expected to start negotiating with overseas iron ore exporters in November. A clampdown on exports would help ease ore demand growth.

The mainland's crude steel output surged 18.9 per cent year on year in the first half to 237.58 million tonnes, as domestic consumption grew 9.6 per cent to about 207 million tonnes.

Hard facts

Steel exports are a key contributor to the mainland's trade surplus

The year-on-year rise in steel exports in the first eight months of the year 84%