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Tax rebate cut to slow steel sector

By Jin Jing (China Daily)
Updated: 2007-04-12 09:00

China's iron and steel industry is expected to grow at a relatively slower pace this year as it will take some time for it to absorb the pressure of the price rise caused by the government's latest move to cut tax rebates on exports of some steel products.

The government will reduce tax rebates on exports of select high-end steel products such as stainless plate and cold-rolled steel sheet and completely remove the tax rebate on hot-rolled steel sheet and section steel from April 15, announced the Ministry of Finance on Tuesday.

"The tax rebate cut, which has been debated for a long time, won't have a substantial impact on the market. Many steel producers increased their exports substantially even before the tax rebate policy was introduced," said Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association at the 2007 China Steel Import and Export Seminar yesterday.

"Besides, the international demand for steel is increasing rapidly," he said.

According to statistics of the General Administration of Customs, China's steel exports stood at 5.38 million tons in March, up 22.8 percent from last year. Exports in January and February amounted to 8.75 million tons, up 40 percent year-on-year.

But Qi said the development of China's iron and steel industry will be slower this year mainly because of the stricter macro control leading to a shrinkage in fixed-assets investment in the industry.

By the end of 2007, blast furnaces below 200 cubic meters and converters and electric furnaces below 20 tons will not be allowed, according to a National Development and Reform Commission policy.

"It's impossible to maintain the usual 20-percent growth rate as steel companies' production capacity will be weakened."

Qi and other steel experts said Chinese steel prices will remain steady and lower than the price in the international market this year. But steel companies' profits are expected to rise because of the improvement in product structure and reduction of operation costs.

Analysts said the rebate cut won't affect prices of steel stocks as the move was widely expected.