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July 13, 2021

China scraps tariffs on some steel products to curb iron ore prices

China announced on Wednesday that it would scrap tariffs on certain steel products and raw materials starting on May 1, in a bid to curb iron ore consumption amid skyrocketing prices that have hurt domestic businesses, while benefiting foreign suppliers such as Australia.

The Tariff Commission of the State Council also made a series of adjustments to tariffs on other raw materials and products related to the steel industry. Meanwhile, exports tariffs are hiked for certain iron products.

The adjustments are conducive to reducing import costs, expanding the imports of steel resources, and supporting the reduction of domestic crude steel output, according to the Xinhua News Agency.

The new measures will prompt the steel industry to reduce energy consumption, promote the sector's transformation and upgrading, and support its high-quality development, Xinhua reported, citing the commission.

Industry insiders said that these moves are intended to level costly iron ore imports and thus reduce steel prices.

"China is strengthening the development of domestic iron ore mines. Meanwhile, it's temporarily eliminated import tariffs on pig iron, crude steel, recycled steel raw materials, ferrochrome and other products, which can effectively reduce the amount of imported iron ore," Ge Xin, a senior analyst with Beijing Lange Steel Information Research Center, told the Global Times on Wednesday.

Wang Jianfu, assistant to the general manager at Shanghai-based consulting firm Steelhome, told the Global Times on Wednesday that the moves signaled the Chinese government's intent to shore up steel imports and curb steel exports with the aim of ensuring the domestic supply of iron ore.

The import tariffs were formerly set at 1 percent so the effect will be small but "given time, the policy, in combination with other policies, will effectively rein in runaway iron ore prices in the second half of 2021," Wang said.

Wang noted that due to the sudden upward surge of steel prices, Chinese steel mills had flat margins while running at full throttle for April, leaving them unable to cope with the sudden price hike."The security of the steel industry is at stake due to the reliance on imported iron ore," Wang said.

However, the iron ore industry, dominated by a few global suppliers including mining giant Rio Tinto and an "unreasonable" pricing mechanism, has seen prices hit record highs.

In the first quarter, China's imports of iron ore reached 283 million tons, up 8 percent year-on-year, while the import price averaged $150.79 per ton, up 64.5 percent year-on-year, according to the China Iron and Steel Association (CISA).

That has significantly lifted up steel prices in China. As of the end of March, China's steel price index stood at 136.28 points, up 9.44 percent from the beginning of the year, CISA figures showed.

Given the huge impact of rising iron ore prices on China's steel industry, Luo Tiejun, CISA vice president, said at an industry conference on Tuesday that China was studying measures to expand supplies to curb prices.

The soaring prices have received much attention at the government level and research into possible measures is in progress, Luo said.

The new tariff policy, which will take effect at the start of May, is a way to tame iron ore demand in a bid to reduce dependence on imports, and it will certainly be effective in the long run, said Ge.

Recycled steel can be imported to replace domestically produced steel, and this will reduce the imports of iron ore, experts said.

While the move is aimed at protecting domestic industries, it also came amid an escalating diplomatic spat between China and Australia, which supplies 60 percent of China's iron ore imports, as prices skyrocket.

Australia has considerably profited from the skyrocketing price, with the value of its exports to China at record highs, Chen Hong, a professor and director of the Australian Studies Center at the East China Normal University, told the Global Times on Wednesday.

However, Chen said China's new adjustment of the tariffs will obviously lower the abnormally soaring prices to be more reasonable.

China has already been pushing for a diversification strategy since last year, ramping up development of domestic mines and tapping African iron ore resources via cooperation.

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