Asian Scrap Markets Waiting for Chinese Export Tax Rebate Change

Written by Damon Sun

The following article is by contributing writer Damon Sun of Daido International.

The Asian markets were anticipating the elimination of China’s export tax rebate, which has not happened yet.  Likely, it will not happen.   Anticipation of the elimination of China’s export tax rebate would have an impact of 9-13 percent increase in China’s exports of some finished products such as billets.   The more likely scenario is China’s Customs department cracking down on inspections.  The small square billets that are being exported from China is being classified as small square finished bars as opposed to billets.   So depending on the situation with customs, prices may move higher if China’s customs starts forcing the correction classifications.

Regardless,  although there has been no announcements on changes, Asian finished steel have started to creep higher.  Whether its sustainable or not is a question.  Asian domestic scrap prices in Korea and Taiwan have moved higher ($7-$10/mt), and import containerized have moved a bit higher as well (currently abt $152-$155/MT CFR).  No major bulk trades in Asia region reported.

Finished steel tends to do well after Lunar New Year in Asia and the uptick in pricing by the mills, should be in preparation for the uptick in demand after Lunar New Year.

US dollar is moving stronger against Asian currencies, and the Japan Yen is also moving stronger. This translates to Japan scrap prices being more expensive than US West Coast scrap prices.  So there should be a move towards more demand on USA scrap.  Iron ore had a 3 week rally, currently at the $43/dmt level.

In summary, the markets are still quite unclear with a major deciding factor depending on whether there will be changes to China’s export duty rebate policies. The recent trend is upwards movements on both the raw materials side and the finished product side despite tepid demand. It leads to the theory that we have bounced off the economic bottom on the pricing of these goods. The future trend in the short term, despite the higher US dollar and poor equity markets, should still be somewhat intact. I expect a tepid recovery at least for the next few weeks.

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