Slash in Chinese export rebate

MUMBAI: China’s move to reduce export rebate on steel products could likely have a positive impact on the Indian steel industry as it would insulate the local sector from further price cuts in the next revision. Indian steel producers had reduced prices of hot rolled steel — a base grade category of steel — by about Rs 1,000 per tonne in the last revision earlier this month. Steel prices are likely to be revised in October.

In a joint statement issued on Monday, the Chinese ministry of finance, national development and reform commission, ministry of commerce, general administration of customs and state administration of taxation said that export rebates for steel products would be reduced to 8% from 11%, with retrospective effect from September 15. “This will slash China’s exports and reduce trade surplus especially for low tech, pollution intensive and high energy consuming sectors,” said an analyst.

Introduced mainly as a macro measure in 1985, tax rebates for exporters are aimed at making Chinese products more competitive in the international market and to also boost their export tally. “Though Chinese authorities have reduced rebates before, the latest move will bring a positive sentiment for Indian steelmakers,” said Reliance Capital assistant vice president Vikram Dhawan. “It’s too early to say if the rebate cut will reduce Chinese exports, as similar moves earlier had left the exports unchanged,” he added.

Domestic steel producers had to cut prices by almost Rs 1,000 per tonne of HR coils last month due to lower procurement in Europe and higher production in China in the first half of the year.

However, local producers expect prices to rise. “To maintain realisation, the Chinese players will have to increase the price by at least 3%,” said Uttam Galva Steels director Ankit Miglani, adding that this could likely lead to Chinese companies losing their competitive edge.

Uttam Galva makes galvanised steel, which is a value-added product typically priced at least 25% more than base grade prices. The reduction in export rebate has already firmed international offer prices by 30%. “Depending on the grade, prices have increased to $520 per tonne, from the current $480,” said Mr Miglani.

Uttam Galva Steels, the country’s second largest galvanised steel producer, is expected to increase prices of its products by almost Rs 1,000 per tonne later this week, following a rise by other galvanised steel producers. Domestic prices are currently hovering around Rs 45,000-46,000 per tonne.