China’s steel suppliers brace for cut in tax rebates

China’s steel mills and traders are gearing up to protect their business from the impact of possible cuts in export tax rebates on certain steel products, currently being considered by the central government.

Industry sources say there is a new sense of urgency in the planning amid growing rumors inside and outside China that the rebate cuts will be announced in a few weeks.

As of the morning of March 18, no official announcement has been made, and officials from the tax policy department of China’s Ministry of Finance, the department responsible for formulating such policies, have declined to comment on the matter.

Meanwhile, market rumors have intensified lately, with the latest rumors suggesting that adjustments to the tax rebates on steel products will be announced in early April and the policies implemented starting in May without a grace period.

The likely size of the rebate reduction remains unclear, but most observers are betting on a 4% cut.

As speculation mounts, Chinese mills and traders are taking several precautions to guard against any negative impact of the planned rebate changes.

Currently for hot-rolled coil, the product China exports the most, the tax rebate is 13%. As a result, a 4% cut would mean that the rebate would return to 9%, the level of HRC before the Ministry of Finance raised the rate with a package of other products to encourage exports in March 2020, when China’s economy was struggling under the COVID epidemic.

Due to policy uncertainties, some steel exporters have stopped publishing prices and are waiting for the policy change to be formalized. On the other hand, others are looking to deliver now so that shipment can be completed before April or May, fearing that their costs could rise very quickly.

According to some Chinese analysts, however, in the long run, the changes in tax rebates are unlikely to have much impact on the flow of Chinese steel products.

It is thought that the cut in rebates will most likely be between 3%-6% so it will only be as a daily price increase. The market will rebalance soon, with Chinese-origin HRC prices still competitive in the global steel market.