The Chinese government has been indicating a desire to get control of its steel sector since the start of the year. One of the anticipated moves was to remove the VAT tax rebate on steel output and they have now pulled that trigger. There had been a 13% rebate on the tax on exports of hot rolled coil, rebar and wire rod. This rebate was designed to boost exports and now China wants to see these exports decline to a degree. They are also moving to make steel and other metal imports easier. The elimination of that rebate immediately drove the price of that exported steel product up and that seems to be the intent. The question is why China wants to limit exports of steel and steel product.
The rationale seems to be connected to issues of over production and concerns over energy consumption. China has long had an overproduction problem as every region in the country decided that it needed its own steel producing capability. It became a race between these regions–a contest to impress the Beijing authorities. What China got was far too much steel and often very low quality steel. For years the government tried dumping this surplus on the global market and that is what triggered the various efforts to impose tariffs on China. Now the Chinese government is trying to discourage this overproduction by setting limits and removing incentives. This also reduces some of the trade tension that has existed due to the Chinese effort to dump that production on foreign markets.
In addition to the export issue there is the Chinese concern regarding energy consumption and the issue of climate change. The overproduction of steel and other metals contributes to the production of greenhouse gas and China has been making a priority of reacting to climate change. One means to that end is to eliminate some of these steel operations that produce largely unwanted and poor quality product.—