Impact of China's Tax Policy on its Export of Steel Products to ASEAN

Posted on 31 January 2008
 

Source: SEAISI
China has emerged as the largest steel producer as well as largest steel consumer in the world market. Before 2005, China used to be a net importer for steel products which was the main factor driving up steel prices in global market. However, with its huge expansion of local steel production, China quickly turned around and became the net exporter of steel products since 2005. China's total net steel export (finished and semis) for the first ten months of 2007 reached 45.4 million tonnes (up 89.17%), compared to 24 million tonnes for the same period in 2006. 

The Chinese government has made concerted effort to control export of steel products by removing tax rebates and imposing export duties over the last few years. The government contended that by increasing export tariffs and removing export rebates, China's export of certain steel products would drop significantly. For instance, after the cancellation of export rebate on billet in 2005, China's billet export dropped 35.6%. The subsequent imposition of export duties further lowered steel export from China. ISSB reported that China's semi-finished steel export dropped by 80% for the period January to November 2007 when compared to the same period in 2006. CISA claimed that the higher tariffs would reduce the nation's steel products export by 20 million tonnes in 2008.

From 1 January 2008, the export tariff on semi-finished steel was raised from 15% to 25% while the tariff on some finished steel products (such as some long and flat products) increased from 5% to 15%. This would have a significant impact on ASEAN which as a region, is a large importer of semi-finished steel and finished steel products from China over the last few years. As ASEAN is not self-sufficient in the production of semi-finished steel, China has emerged as a main source of supply in the region. In addition, China's export of finished steel product into ASEAN also surged substantially since last year.  

China's steel export to ASEAN
ASEAN, as a region, is an important export destination for China's semi-finished steel and finished steel products. Export of steel (finished and semis) from China to ASEAN totaled 10.5 million tonnes for first ten months of 2007 (up 32.3%), compared to 7.9 million tonnes for the same period of 2006.

Semi-finished steel
After the removal of export rebate on billet in April 2005, China's export of semi-finished steel to ASEAN dropped drastically from a high of 389,000 tonnes in July 2005 to 60,000 tonnes in September 2006. However, the drop was only temporary as the strong demand for semi-finished steel compelled ASEAN producers to continue to import from China. As a result, export of semi-finished steel from China to ASEAN continued to surge and by mid 2006, the volume had even surpassed the previous high. After the Chinese government imposed a 10% export duty on semi-finished steel in November 2006, the export volume to ASEAN dropped by almost half by February 2007 but started to pick up after that.  Total export of semi-finished steel to ASEAN in the first ten months 2007 registered 2.6 million tonnes, a decline of 21% from the same period in 2006.

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Long steel product
Export of long product, i.e., section, bar and wire rod from China to ASEAN countries has been on upward trend and registered record high in 2007. ASEAN countries are quite self-sufficient in the supply of long products and normally import special quality long products mainly for machinery purpose. China's export of section to ASEAN registered a huge increase of 78% during the first ten months of 2007. Bar export from China to ASEAN also saw a significant increase of 54% y-o-y. Export of wire rod almost doubled from 750,000 tonnes in first 10 months of 2006 to 1.4 million tonnes in the same period of 2007.

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Flat steel product
China's export of flat product to ASEAN has increased significantly since late 2006 and continued to grow at a significant level throughout 2007.
China's export of plate to ASEAN started to pick up in 2006 and continued to surge to reach high record levels up to October 2007. Total export volume doubled from 550,000 tonnes for the first ten months of 2006 to 1.1 million tonnes for the same period in 2007. Export of HRC to ASEAN also doubled in volume to reach 1.7 million tonnes during the first ten months in 2007.

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China's export of cold rolled carbon steel to ASEAN grew by 21% during the first ten months of 2007.Export of coated steel product from China to ASEAN is, however, not significant. On the other hand, export of hot dipped galvanized sheet and color coated sheet during the first ten months 2007 registered a huge increase of 165% and 350%, respectively. Export of hot dipped galvanized sheet to ASEAN was recorded at 178,000 tonnes for the above period. There was a six-fold increase in export to Indonesia and Vietnam while the export volume to Thailand, Singapore and Malaysia doubled. Export of color coated sheet from China to ASEAN also registered a robust increase starting from June 2007. Total export to ASEAN was recorded at 60,000 tonnes in first ten months of 2007 compared to 13,000 tonnes in the same period of 2006.

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The latest hike in China's export duty on steel products will certainly have some impact on its export to ASEAN. The 10% increase in export tax to 25% on semi-finished steel would certainly dampen the demand from ASEAN producers. However, as ASEAN is not self-sufficient in the supply of semi-finished steel within the region it may need to find alternate sources of supply to meet its need. It is estimated that ASEAN imported around 7 million tonnes of semi-finished steel in 2007, of which nearly half was sourced from China. It is likely that Chinese steel manufacturers may replace the export of semi-finished steel with the export of more finished steel products. As a consequence, domestic steel manufacturers in ASEAN may have to prepare to cope with the increase in prices of semi-finished steel and at the same time, contend with the increase pressure of lower-price finished steel products from China.


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