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Rising Export Profits Stimulate Exports of Hot-Rolled Plates in 1H08

Exports of Hot-Rolled Plates Soar from January to May 2008

The Central Government has adjusted export taxes since January 1^st 2008. Of these adjustments, export taxes of hot-rolled plates went from a 5% export rebate to a 5% export tax. According to CBI’s data, exports of hot-rolled plates have been growing steadily since February, and the rise was due to higher export profits.

Higher Export Profits Lead to Strong Exports

CBI made a comparison between production costs in the hot-rolled sector and profit margins both home and abroad (Chart 2). Domestic prices were higher than production costs, but still lower than export prices, and the price spread between them was gradually expanding. Therefore, domestic steel mills and traders prefer to export in order to maximize profits, causing exports of hot-rolled plates to rise during 1H08.

China’s exports of finished steel experienced rapid rises from March to May, after hitting a new low in February 2008. According to CBI’s analysis, the rising exports in March were attributed to higher export profits. Sources said a large number of steel mills planned to lift export prices further due to strong exports of hot-rolled plates in 1H08 as well as optimistic outlook about overseas markets, and meanwhile domestic traders also held optimistic attitude about the overseas markets.

Export Taxes of Alloy Steel Bar Likely Adjusted on August 1^st Due to Soaring Exports

Exports of Alloy Steel Bar Soar from January to May 2008

Based on Chinese Customs data, China’s exports of finished steel were 27.73 million mt from January to May, down 6% on a YoY basis, but YTD exports of alloy steel bar reached 1.8 million mt, surging 287.82% YoY.

In response to this data, CBI conducted a survey which revealed the following insights. First, most exports were not special steels, but rebar, wire rod, coil and hot-rolled coils with boron, vanadium and chrome added. Second, sharp declines in exports of long products and hot-rolled coils due to higher export taxes were responsible for the surge of alloy steel bar exports. Export taxes of long products were raised to 15%, from the level of 10%. Export taxes of 5% for hot-rolled coils were imposed on January 1^st, a reversal of the previous 5% export rebate. Since exports of alloy steel bar receive 5% export rebates, it was still profitable for producers to export alloy steels, even as smelting costs increased.

The Central Government Likely to Adjust Export Taxes of Alloy Steel Bar

CBI believes the Central Government will redefine the range of bars added with alloy elements which will be subject to new export taxes beginning on August 1^st. The adjustment of taxes will comply with the following principles. First, the Central Government will maintain the 5% export rebates for special steels. Second, the Government will redefine bars added with alloy elements and raise requirements for chemical constitutes. Products which qualify under the new requirements will use the original HS code. Third, any products which do not meet new standards will have a new HS code, and export rebates for those new HS coded-products will be cancelled. Fourth, CBI believes export taxes on boron and chrome-added alloy steel will be 15%, the same for rebar, wire and rod, since the new export policy, in place since January 1^st , has been effective in dampening exports of rebar, wire and rod, and other products.