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Key Factors Driving Chinese Steel Exports

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Chinese steel exports

Previously, we saw how Chinese steel exports have reached historical highs this year. One of the reasons behind these exports is believed to be a tax loophole in China. China has a preferential tax policy for alloy steel products. Let’s see how Chinese steel producers are taking advantage of this loophole.

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Boron alloy products

A lot of steel producers in China have started adding a small quantity of boron to standard steel products. This helps them classify these steel products as alloy steel. According to estimates, the tax benefits realized by adding boron outweigh the cost of adding boron by at least five times.

Boron alloy steel is estimated to account for around one-third of Chinese steel exports this year. The above chart explains the boron saga in brief.

While steel companies in China have benefited from this tax loophole, steelmakers elsewhere have been complaining about these imports.

Antidumping duty

It’s worthwhile to note that in 2011, the United States imposed an antidumping duty on imports of certain boron alloy products from China. The products contained only a miniscule amount of boron. Nucor (NUE) led the fight against these imports. Currently, Nucor (NUE) is a top holding of the SPDR S&P Metals and Mining ETF (XME).

However, there are rumors that China might soon close this tax loophole. Rumors started when a top official of China’s Iron and Steel Association made a statement to reporters at the annual World Steel Conference that China is planning to cut rebates on finished steel products from 2014.

If China does take this step, the global steel industry will benefit. US steel producers such as ArcelorMittal (MT), AK Steel (AKS), and U.S. Steel Corporation (X) will benefit from this move.

Please visit Market Realist’s industry page to learn more about emerging stories in the steel sector.

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