On March 25, the Chinese State Council announced an increase in the export tax rebate rate for steel products, effective from April 1. Industry experts suggest that this move could shift export expectations, encouraging steel companies to offload excess inventory onto international markets. However, most analysts remain skeptical about a significant rebound in steel prices, given the ongoing industry-wide oversupply.
The impact of the tax rebate is expected to be more pronounced for wire rod products. According to a survey by the China Steel Association, around 60% of steel exports in January were carried over from the previous year. With projections showing a drop of over 80% in steel exports for 2009, domestic market pressure has intensified significantly.
Sun Zhibiao, a futures analyst at Mainland Futures, noted that weak foreign demand has placed immense pressure on the domestic market. “Since last year, many steel mills that had shut down have gradually resumed operations, with production rates now reaching 70%. While output is recovering, external demand is declining, and domestic demand remains sluggish, which naturally increases stockpiling pressures,†he said. The tax rebate policy, he added, offers some relief.
Wire rods have historically benefited more from export activities. Between 2004 and 2007, rebar exports accounted for roughly 9% of total steel exports, while wire exports made up slightly more than 10%. Currently, domestic steel prices are higher than those in major export destinations like South Korea, the EU, and the U.S., making it difficult for Chinese steel to compete globally.
Liu Zheng, a seafarer futures analyst, stated that improving the export tax rebate rate would help companies reduce costs and regain some export competitiveness.
While the policy may provide temporary relief, analysts agree that it won’t solve all issues. The key factor to watch is whether foreign demand improves. Sun Zhixi added that recent U.S. economic policies have created inflationary expectations, which might give a small boost to the economy, but the duration of this positive trend remains uncertain.
Liu Hao pointed out that China’s construction steel exports are limited, so the tax rebate may not have a significant impact on rebar and wire rod. Data shows that rebar import and export volumes are relatively low, as China is in a critical phase of urbanization, driving high demand for building materials.
Liu Xin highlighted that steel prices in the second quarter remain highly uncertain, with raw material costs being the biggest unknown. He explained that rebar and wire rod, being lower-end products with less technological value, are heavily influenced by fluctuations in raw material prices.
Earlier in March, Baosteel reduced its April product prices, followed by Angang, which also cut ex-factory prices by between RMB 300 and RMB 550 per ton. Sun Zhiyi believes these price cuts may curb the scale of steel mill resumption, and limiting production could temporarily support prices. However, if demand doesn’t improve, steel companies may face further inventory buildup, leading to a prolonged and challenging adjustment period.
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