There has been increasing market chatter in recent weeks about more changes in steel tax rates which could be announced on August 1, causing hesitation and confusion in export trading.
Market sources said the VAT tax rebate on cold-rolled coil and galvanized coil could be reduced, or removed, while there could also be export taxes imposed on steel to control export volumes.
“Many Chinese steel mills are not giving offers, or are just listing high offers with no real intention of selling, because of this,” a key Vietnamese buyer of hot-rolled coil told Fastmarkets in the week to July 27.
Traders handling hot-rolled coil are reporting thin demand from buyers and limited supplies with which to enter negotiations.
Many major steel mills are listing HRC offers up to $1,000-1,030 per tonne fob China, although there were also offers heard at $940-960 per tonne fob China by smaller, privately-owned steel mills.
Chinese traders said they are not currently offering any flat steel exports, and were waiting to see whether any changes to steel taxes are announced on August 1. Some said that the changes could also be introduced in September.
“Given the recent surge in steel export volumes, there is a real possibility of the taxes being introduced,” a trader in eastern China told Fastmarkets.
China reported an increase in steel exports of 74.5% in June 2021 to 6.46 million tonnes, with its total exports between January and June increasing by 30.2% year on year.
A second trader in eastern China said limiting exports may not fully ensure stable domestic supply.
“Exports account for just a small portion of overall Chinese supply, and recent exports were bought regardless of price changes because of strong demand,” the source said.
Many traders are not in the spot market, preferring to wait for more confirmed news of any new tax changes before entering into positions. Some have also reported a lack of supply from steel mills, especially major state-owned enterprises.
“Some steel mills are now required to report their export data; they are more wary of exporting,” a third trader in eastern China told Fastmarkets on Tuesday July 27.
Buyers sidelined
Overseas buyers have also held back from activity, sources said, due to uncertainty caused by the potential changes in the steel tax regime.
Liaoning-based Benxi Iron & Steel had listed its offer for August-production/September-shipment HRC at $1,030 per tonne fob and hot-rolled sheet at $1,035 per tonne fob.
It did not list any offers for CRC, but said it was open for negotiations. Its sales clause for cold-rolled coil stipulated that buyers have to shoulder the full burden of any tax changes has reduced buying interest, sources said.
Market sources reported limited transactions of CRC at $925-930 per tonne fob China, against offers at $950-970 per tonne fob China.
Fastmarkets’ weekly price assessment for steel CRC, export, fob China main port was $925-930 per tonne on Tuesday July 27, narrowing by $5-20 per tonne from $920-950 per tonne on July 20.
Benxi Iron & Steel also offered September-delivery 140gsm zinc-coated zero-spangle HDG at $1,200 per tonne fob, unchanged week on week. It is not offering regular-spangle HDG due to a lack of supply.
There were transactions for 80gsm zinc-coated HDG at $950-960 per tonne fob China, equivalent to $960-970 per tonne fob China for 120gsm zinc-coated HDG to South Korea. There were also transactions heard at $990-1,000 per tonne fob China for 120gsm zinc-coated HDG.
“Trading margins are thin now, and it will be difficult to offset losses caused by any VAT tax rebate cuts, or new export taxes,” a third trader in eastern China told Fastmarkets on Tuesday July 27.
Fastmarkets’ weekly price assessment for steel galvanized coil, 1mm, export, fob China was $960-1,000 per tonne on Tuesday, widening downward by $10 per tonne from $970-1,000 per tonne on July 20.
Less Chinese seaborne cargoes
Many market participants expect fewer seaborne steel cargoes to be present in Asia and international markets if more tax changes are implemented.
“This may support steel prices due to lack of supply from China, which has previously been very active in export flat steel,” a seller source close to a major Indian steel mill told Fastmarkets.
Market sources said this could also increase the prominence of new blast furnace-based steel mills in southeast Asia, including Formosa Ha Tinh Steel Corporation and Hoa Phat in Vietnam, and Dexin Steel in Indonesia, especially if they become the preferred suppliers to southeast Asian buyers.
Hoa Phat Group and Dexin Steel are both looking to increase their flat steel capacities for hot-rolled coil, with the latter already starting to sell steel slab after its second blast furnace began production.
East Asian producers are also optimistic, particularly with growing living standards in Asia set to boost demand for high-grade flat steel.
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