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China duty revision to support steel prices

China removes import duty on semi-finished steel as well as rebates on exports

* China has removed tariffs on imports of pig iron, semi-finished steel, high-quality scrap, and ferrochrome. On the other hand, the country has also removed export tax rebates on exports of pig iron, flat-rolled steel products of carbon/stainless steel, iron rods/wires, etc.

* We see this move as a measure to a) reduce carbon emissions by limiting the production of crude steel, b) balance domestic demand-supply by incentivizing imports and discouraging exports, and c) control the cost of raw materials such as iron ore and coking coal.

* We expect this policy to have a positive impact on steel prices as lower Chinese exports (if this happens) would lead to further tightness in regional demandsupply. Moreover, the removal of export rebates would lead to an increase in Chinese export prices, which have generally been at a discount to Korean/Japanese prices.

* The removal of export rebates would reduce China’s net steel exports – which rose 26% YoY (73% QoQ) to 14.0mt in 1QCY21, the highest in the past nine quarters. China’s steel exports at 7.5mt in Mar’21 were the highest in the last four years.

Regional HRC prices remain strong

* Regional steel prices have inched up further in the last fortnight in response to the tightness in steel demand-supply and the continuing global demand surge.

* China domestic HRC prices (incl. VAT) have increased 4% WoW to USD885/t; export prices have also increased 3% WoW to USD915/t.

* Korea export FOB prices have edged up 2% WoW to USD985/t (CFR India – USD1,010/t). Domestic HRC prices at INR65,125/t at traders markets trade at a discount of INR10,620/t to the landed cost of imports from Korea. Domestic mills’ listed HRC prices are still at INR62–63k/t. Thus, we expect domestic mills to take further hike prices in May’21.

* We expect India’s steel exports to remain elevated in May’21 on lucrative export realization and weakness in domestic demand (due to local lockdowns). HRC export FoB India prices increased 2% over the last two weeks to USD950/t – INR8,000/t higher v/s domestic realization.

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