SHANGHAI Speculation is mounting that China will cut export taxes on ferroalloys in 2013, not only to support local producers but also in response to a ruling that the tariffs broke World Trade Organization (WTO) rules.
"In order to advance the growth of economy and the industry, the tariffs (on some products) may be adjusted moderately," Feng Jinping, deputy director of Chinas department of customs at the Ministry of Finance, said at a recent ferroalloys industry conference.
China revises customs duties on some products on Jan. 1 each year, but Feng didnt confirm details of the possible tax adjustment, which he said would be announced "soon."
A reduction in ferroalloys export taxes would be a reversal of a policy announced five years ago, which the government said was aimed at limiting overexpansion of an energy-intensive industry and conserving resources.
Weaker markets, however, have encouraged ferroalloys producers to seek lower taxes.
The policy came under more pressure after the WTO backed a complaint from the United States, the European Union and Mexico that the taxes function as an unfair subsidy to Chinas steelmakers.
"I guess most of the alloys (that will have taxes cut) will be the products which were claimed by the USA and Europe to be against the free-trade principles of WTO, such as electrolytic manganese, tungsten, molybdenum," according to Qi Biao, general manager of Erdos Metallurgy Group Co. Ltd., one of Chinas largest ferrosilicon producers.
China levies a 25-percent tax on ferrosilicon and a 20-percent tax on all other alloys.
The China Ferro-alloys Association has reportedly discussed the export policy with the government several times this year.
There had already been speculation that export tariffs on electrolytic manganese and molybdenum would be reduced or canceled next year.
International buyers are also awaiting an announcement and have held off on purchasing.
"The export market is quiet these days, as overseas players also are waiting for a decision," Qi said.
Yang Lizhong, chairman of OM Materials (Qinzhou) Co. Ltd., one of the biggest manganese ore importers and manganese alloys producers in China, said he expects export taxes to be cut or canceled to make China competitive in the international market.
"The current export offers of manganese alloys from China are at $1,550 to $1,600 (per tonne) f.o.b., much higher than the Indian level of around $1,250. The huge price gap leaves Chinese cargoes uncompetitive," Yang said.
Export tax cuts or cancellations would also dampen incentives for smuggling activity, which the government has been trying to clamp down on in the past year.
Smugglers typically buy material without a value-added tax, then ship it from Guangxi province over the border into Vietnam to avoid customs payments.
Although the government this year increased customs smuggling inspections, reports of illegal exports remain.
"The ferroalloys industry has run into difficulties in recent years. We cant (be) completely dependent on exports to solve the problem," Feng warned.
A version of this article was first published by AMM sister publication Metal Bulletin.