Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The Chinese government mulls to impose further taxes on steel exports as part of its efforts to control high steel and base metal prices. Steel exports rose by 30pc in H1 2021 despite cancellations of export tax rebates. Soaring raw material prices have forced the world’s largest producer to monitor commodity prices to maintain domestic economic growth. 


Authorities have directed Chinese steel mills to not exceed the 2020 export level. Projections show steel exports could reach 60mn mt in 2021. Following this, a few Chinese mills have canceled July export contracts with some countries, including Turkey. Mills are managing their orders to not exceed volumes of the prior year when demand was hit due to the pandemic.


There is still a wide gap between international prices and Chinese prices which makes Chinese exports competitive. 


Effective May 1, China removed 13pc value-added tax rebate on steel exports to discourage exports and control prices. However, the move failed to stop exports to the desired extent. Prices rebound after dropping by over $100-150/mt. In July, domestic prices rose with spot steel prices up by over 7pc.


During January-June, steel exports rose by 30.2pc from the previous year to 37.38mn mt. In June, China’s steel exports rose 22.5pc to 6.46mn mt from the prior month and up by 74.6pc from a year ago despite the removal of rebates, according to customs data. Low domestic consumption amid the rise in steel production also boosted exports. 


China has increased efforts to control steel production and emissions. A production cut of up to 30pc is expected to continue until the end of 2021 in some provinces, including Hebei. Steel exports are thus expected to drop in the second half of 2021. 


What will be the impact on the Indian steel market?

If China imposes further taxes on exports, Indian steel mills could benefit and they may aggressively target the export market amid weak domestic demand. Most primary mills in India have remained unaffected by the global volatility in iron ore prices as they own captive mines and could gain a competitive edge in the absence of Chinese mills. 


Indian domestic steel prices are still around 20-25pc lower than international prices. Steelmakers are ramping up semi-finish production to tap the export markets. 


In the domestic market, with necessary COVID-related measures, Indian production and demand are likely to increase post-monsoon season. The infrastructure and construction sectors could buzz again with active demand in the last quarter of 2021. Steelmakers believe global steel prices are unlikely to witness a steep correction in the coming days.


Reserve release

To stable commodity prices, China’s economic planner National Development and Reform Commission (NDRC) sold 20,000mt of copper, 50,000mt of aluminum and 30,000mt of zinc from its reserves on July 5. NDRC also released 10mn mt of coal reserves. The commission is likely to release the second batch of non-ferrous metal reserves by the end of July or early August. 

Leave a Reply

Your email address will not be published.