Well just a few weeks back it was reported that China would remove export rebates, a key subsidy, from its steel industry. These were rebates put in place during 2009 to protect what is a massive industry for China.
They’ve now gone ahead and done it, according to Shanghai Securities News, after steel exports rose 13.8% month-over-month in June. Government rebates for 48 types of steel products have been removed as of July 15th. These include hot rolled sheets, cold rolled sheets, and steel plates.
This is overall a good sign of confident from the Chinese government, but what we said before still holds:
The Chinese government has long sought to push consolidation in its steel industry, and to clear out the many small inefficient players, and this is now a continuation of this policy.
Thing is, the implications are a bit tricky to gauge. Added pressure is a good sign from the perspective that the Chinese government is confident enough in the strength of its economy to pull back a steel subsidy, yet should China’s steel industry be hit too hard it could be bad news for major commodities which feed steel such as iron ore and coking coal. There’s also of course the risk that far more damage is caused to the steel industry than the government intends.
The fact that China’s economy is cooling, yet still growing nicely, ie. is a Chinese goldilocks, is probably one reason why Chinese leadership has been comfortable to remove steel export support. Still, this isn’t good news for related commodities markets such as iron ore, coking coal, and the dry bulk shipping rally, since some smaller Chinese steel companies will go under as a result, or some older capacity will be shut down, which means less demand for steel’s raw materials.
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