SteelGuru’s Market Intelligence Service PS14 in early November vide an article “Rumours of VAT rebate removal/reduction on boron added steel exports gaining ground in China” had reported that the rumour of adjustment in VAT rebate by Chinese government for steel exports was gaining strength but so far nothing has really come out

But off late, a new wave of rumours in this regard has started making rounds with expectation of some announcement in January making Chinese steel exporters cautious of finalizing new deals

Chinese steel mills are in full throttle on steel export front with November volumes touching almost 10 million tonnes and it is expected that December exports would be at similar levels. As per estimates, four items account for major share of total exports ie billets in form of value added square bars, rebars, wire rods and HR and most mills are circumventing not only export tax but also availing VAT rebate by adding 0.0008% Boron

The current tax structure for steel exports from China is as under

As per market information, Chinese government could reduce or cut export tax on mild steel if VAT rebate on Boron added steel is reduced or withdrawn keeping Chinese steel mills in play but changing the export dynamics. As the growth in Chinese domestic steel demand is outpaced by than that of production resulting in surplus volumes making exports a necessity, any drastic action by the Chinese government is unlikely

Moreover, China is probably the only country to have a tax structure on exports as most countries do not charge any taxes on goods destined overseas. The current tax structure as mentioned above has two components

1. Export Tax – This was introduced by Chinese government to dissuade Chinese steel mills to focus on domestic supplies and curb usages of natural resources. But over the period of time, situation has changed drastically and huge surplus capacity has come into existence. As it is a self imposed tax, China can change is any time and rationalize the export tax structure but would go against the government's long standing campaign to conserve energy

2. VAT Rebate - Value Added Tax is tax levied on the selling price of the steel in the domestic market and is paid by the mills to the government after charging the domestic buyers but is not applicable on exports. In case of China, even if exported, the VAT is included in the price given by the steel mill to the trading companies putting Chinese steel mills at a distinct disadvantage as compared to steel mills worldwide. In fact even the refund of VAT rebate is a lengthy process blocking cash flow.

While the total blockage of Boron added steel export route without removing export tax on mild steel would push FOB levels by about USD 40 per tonne bringing smile to steel mills in other parts of the world, it is quite unlikely.

While the market is abound with rumours, no one really knows what is going to happen but “If”' anything happens, it will be just decided and implemented without any prior announcement

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