The Chinese steel industry is racing to export as much steel and steel products as it can in reaction to rumors over the past few months that the government is about to cancel its tax rebate and/or raise steel export tariffs. Steel exports have sought new highs in both July and August.

But the rebound of steel product and steel billet exports is also aggravating industry concerns by making it even more likely that export tariffs will be raised.

The latest China Customs figures show that, in August, China’s steel products exports reached 7.68 million tons, up by 42.78% over the same month last year. In August net steel exports reached 6.35 million tons, 10.05% over the previous month and 62.2% over the same month last year. Steel exports in the first eight months of 2008 totaled 41.84 million tons, a drop of 7.2% over the same period last year, while steel imports totaled $4.19 million, up by 36.7%.

The continuing surge in steel exports in August is related to the rumors that that new regulations regarding steel exports will be released soon. But steel prices on the international market are also much higher than domestic steel prices, and the price gap is widening. China’s hot rolled steel products are now exported to the US market at about $800/ton, undercutting standing prices in the US market of around $1000/ton. With domestic steel prices declining, Chinese exporters can still eke out profits and are trying to export as much steel as possible.

The rumors run that the application for the steel export tax adjustment was submitted at the end of August. But, due to the concern that export limits may further increase international prices and widen the price gap, the policy has not yet been released.
China planned at the beginning of the year to limit single month steel exports to under 5 million tons, i.e. 10% of the total steel production during the same period. However, steel exports leapt up in July and August. Anti-dumping and anti-subsidy calls are echoing around the international market. The government’s wish to stick to “proper” export policy makes it yet more likely a tax adjustment for steel exports is due.

Zhang Ping, a umetal.com analyst, predicts that, if the government does increase regulation over steel exports, alloy steel, mainly alloy bars and alloy wires will become a key subject. Canceling the 5% tax rebate for seamless steel pipe could to some extent control exports, but given the trade friction over steel pipe in the international market, the government may decide to levy a 10% tax on steel pipe exports.