Cisa pushes tax changes to boost China steel scrap use

The China iron and steel association (Cisa) has called for domestic ferrous scrap availability to be increased through higher tax rebates and lower import taxes, changes that would help contain iron ore prices.

China should increase mills' value-added tax (VAT) rebate ratio for domestic steel scrap from 30pc to more than 70pc and cancel the 2pc import tariff and VAT on steel scrap imports as a way of boosting use, Cisa said on 1 February.

China's steel companies will face the problem of severely squeezed margins in 2021, amid high raw material prices like those for iron ore, and reduced steel production, Cisa said.

Cisa has suggested boosting steel scrap imports and increasing the use of domestic steel scrap in order to help provide more steelmaking raw material options for domestic steel mills that have faced record high iron ore prices in recent months.

Beijing has taken aim at iron ore prices, so it is possible that the 2pc import tariff could be removed, Chinese market participants said. But it is less clear whether mills could avoid all VAT payments on scrap because it is a significant amount of revenue. It might be difficult for Beijing to implement a countrywide rebate because localities already have varied tax rebate ratios for scrap that have been around for a long time, participants said. No proposals were heard finalised.

China [restarted ferrous scrap imports on 1 January] (https://direct.argusmedia.com/newsandanalysis/article/2173804). Opinion is mixed on whether this will immediately influence seaborne prices and trade flows.

A major increase in China's scrap imports would "definitely rock" the global seaborne scrap market, a market participant said. Seaborne prices would surge as supply tightness would be a serious issue for other countries that are more reliant on electric arc furnaces. Global scrap supply cannot match the amount of iron ore that is consumed by Chinese mills, the market participant added. Global recycling association BIR estimates that 630mn t/yr of steel scrap is recycled.

China's ministry of industry and information technology said last month that the country's crude steel output must fall in 2021, as part of low-carbon initiatives under the 14th five-year economic plan for 2021-25. That message was initially ignored by industry but is now being taken seriously, with more mills scheduling outages.

Beijing is also mulling cancelling rebates for steel exports to shore up domestic supply, which would aid efforts to cut output. Uncertainty about the export rebates has discouraged coil spot trade for April shipments because of the risks if rebates are cancelled.