China's steel industry and its impact on ASEAN

Posted on 06 January 2015
 

Source: SEAISI
China's steel industry has grown significantly over the decades. This has resulted in a rapid expansion in steel production within the country. Compound average growth rate of steel production in the country picked up by 6.4% from 1980 to 2000 and the rate surged robustly to 19% in the next eight years. China's steel output growth rate slowed down after the economic crisis in 2008 to an average rate of 9.2% till 2013. China, however, has become the largest steel producing country, accounting for about 50% of the global crude steel output in 2013.

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Many Chinese steel companies were ranked among the global top 20 steel producers in 2013.

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According to World Steel Association, China's steel demand growth is slowing down. The expected growth rate was estimated at only 1% y-o-y in 2014 due largely to the rapid cooling of the real estate sector. Such weak growth momentum is expected to continue into 2015, with an expected increase of 0.8% in steel consumption in the country.

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China's finished steel import slowed down to 4.1% y-o-y in the first ten months of 2014. Meanwhile, finished steel export jumped by 42.4% y-o-y in the same period. This has resulted in a huge net export volume of 62.27 million tonnes in the first ten months of 2014. China's export of long steel increased sharply by 40.3% y-o-y in 2013 while export of flat steel grew moderately with a single digit growth rate. Export of HRC, for example, rose by 7.3% y-o-y in 2013, coated steel export increased by 4.6% y-o-y in the same period.

China's steel export to ASEAN has also surged significantly. Export of bar to ASEAN almost doubled in volume to 4 million tonnes in the first nine months of 2014, followed by the increase of HRC export which jumped by 52.1% y-o-y to 2.4 million tonnes in the same period. Export of wire rod rose by 17% y-o-y to 3.1 million tonnes in the first nine months of 2014. Export of hot rolled plates also jumped from 912,000 tonnes in the first nine months of 2013 to 1.18 million tonnes in the same period of 2014. 

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Trend of steel exports from China to ASEAN closely mirrored changes in China's steel tax/rebate structure over the years. Up until 2007, China was a major supplier of semi-finished steel to ASEAN, which peaked at 4 million tonnes in 2006. However, export of semis from China started to drop in 2007 with the introduction of a 15% export duty in June 2007 and the export virtually ceased from 2008 onwards after the export duty was raised to 25% in January 2008.

For bar and wire rod, a 15% export duty was introduced in January 2008 on carbon grade. The duty was not applied to alloy grade, which is considered high-end. Exporters are also eligible to claim a tax rebate of 9% on the export of such alloy grade bar and wire rod since 2009.

The ASEAN steelmakers have long been complaining about the issue of boron-added steel. By adding the minimum 0.0008% boron to the carbon steel, exporters could declare the product as alloy steel, thus not only avoiding the 15% export duty but also eligible to claim tax rebate of 9% - a net tax benefit of 24% enabling them to compete unfairly with similar products produced in ASEAN.

The situation is also similar for other products such as section, plates and hot rolled coil which attract 15% export duty.

For cold rolled coil, which is considered high value, no export duty is applied on carbon grade

According to statistics from China's customs, China's export of alloyed steel (section, bar, wire rod, HRP and HRC) rose significantly while export of carbon steel in the respective categories declined sharply.

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