Posted on 27 November 2007

 

Source: Trade and Business Information Center, November 2
The information that China may raise the export ingot steel tax to 25% from the current rate of 15% in early December 2007 has heated up the regional steel market, according to the Vietnam Steel Association (VSA).

No official decision on raising the tax has been announced yet, but the information can be seen on a lot of Chinese websites, raising concerns about further increases of steel prices.

Currently, China is selling ingot steel to Vietnam at $610-620/tonne, an increase of $10/tonne over last week. Similarly, ingot steel sourced from other markets has also increased in price to $585/tonne from $570-575/tonne over the last few days.

If the government of China raises the export tax rate on ingot steel as the websites are reporting, the regional steel market will be strongly shaken.

Enterprises have calculated that if the ingot steel tax increases by another 10%, and the import tax remains at 2%, the ingot steel price will exceed the $650/tonne threshold, and domestic steel prices will be higher than VND13mil/tonne.

The most worrying problem is that when China raises the export tax, the price of ingot steel in other markets in the region will also increase. Though the ingot steel price offered by non-China sources is $30/tonne lower than China-sourced products, non-Chinese products are as expensive as Chinese products due to high transport cost.

According to VSA, iron ore suppliers are also planning to raise the price of iron ore by 50% in early 2008 due to the increased crude oil price, which has pushed exploitation costs up.

Steel producers and iron ore suppliers still cannot agree on ore prices. However, sources say that the 30% increase of the price of iron ore price is inevitable. The higher input material prices will certainly lead to sharp increases of ingot steel and steel prices. The countries which cannot produce ingot steel themselves will most suffer.

Nevertheless, some analysts say that it is just a rumour that China will raise the ingot steel export tax. Le Ngoc Son, Deputy Director General of VIS, said that China's ingot steel exports were now limited with the export tax rate of 15%, and the exports would be more limited if the tax rate was raised to 25%. Therefore, a tax increase should not be seen as a wise move.

Vietnamese enterprises, which cannot know what is the truth, are now trying to import as much ingot steel as possible. Some of them are trying to import more finished steel products as well, as sources say that China is also considering raising the export tax on finished steel exports from 10% to 15% together with the ingot steel tax increase.

According to VSA, despite the escalating prices, steel consumption continues to increase stably. In the first 10 months of 2007 the volume consumed increased by 19% over the same period of 2006.

 

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