Tax Cut in China to Help Indian Steel Giants
[2010-06-25 09:32:45]
In a move to check the low-grade steel production in China, the government has withdrawn the 9% export rebate given on products such as hot and cold rolled coils in the flat segment, and long steel, which primarily used in the construction sector.
The rebate stands withdrawn with effect from July 15. Industry experts and analysts believe this is a positive move for Indian steelmakers as the price difference between local and imported steel is currently $100 per tonne.
Imports from China could slow down and prices could stabilise. Currently, China exports hot rolled coils at $600 per tonne. Withdrawal of the 9% export rebate would mean $54 per tonne lesser profit for Chinese steel exporters, effectively leaving a very thin or possibly no margin. This would mean reduced level of Chinese steel exports in the second half of the calendar year 2010.
Analysts said the news is positive for steelmakers such as Tata Steel and JSW Steel. However, they believe the news is a negative for iron ore miners like Sesa Goa, as most of Sesa Goa’s ore is exported to China.
The hidden agenda for this move is that this would lead to strong production cuts in China, reducing raw material prices. Ultimately, the strong pricing power of miners will reduce.
There has been a huge surge of steel coming from China in the past two months at an average price of $550 per tonne. This has really impacted India’s sales and prices are under tremendous pressure. Given the high raw material costs, India cannot afford to sell its steel at such low prices.
Source: www.commodityonline.com
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