2016 Export Tariff Rate Will Bring About a Great Change to Chinese Ferroalloys Industry

[Ferro-Alloys.com]  On December 4th，2015, Chinese Customs Tariff Commission of the State Council issued 2016 Import and Export Tariffs Schedules, which will be effective from January 1st，2016. The export tariffs on ferroalloys products keep the same as that implemented on 2015. For example, the tariff rates on ferrosilicon (HS code 72022100 & 72021900) stay at the level of 25%.  It was estimated that the tariff rates might be lowered or cancelled by some market participants months ago, but it proves to be false.

Chinese ferroalloys products have lost its price advantage in the international market due to the high export tariff during the past few years, and the export volume of Chinese ferroalloys declined sharply. What’s more, it indirectly led to the smuggling of ferrosilicon and other ferroalloys. As the export business was severely affected, entrepreneurs expect that the government will lower the tariff rate, but it failed. 

As the severe pollution of ferroalloys enterprises has caused wide public concern in China in the past decade, the government discourages the export of ferroalloys products. The tariff was levied in 2006, and it increased to 20%-25%. Correspondingly, the export volume dropped to 500,000-600,000 tons in 2014 and 2015 (tariff number: 7202), which was below 2% of total output. In contrast, it reached as much as 3200,000 tons in 2007, which was above 15% of total output.

Although it is difficult to figure out the exact smuggling amount, the actual annual export volume of ferroalloys was believed to be above 1000,000 tons in China. The fact is, the government lost a lot of revenue on tariff, and the formal export procedures of Chinese ferroalloys enterprises were severely disrupted. In addition, the overseas steel mills will face with higher raw material cost if they import from formal channels.

As for Chinese ferroalloys capacity and output, many large furnaces had been put into operation during the past few years. The total capacity was 20 million tons in 2004, and it increased to 40 million tons in 2014.

Along with the declining competiveness of Chinese ferroalloys enterprises, the overseas enterprises are seizing more market share. For example, India, Brazil, and Malaysia have made big progress in the international market. Even if Chinese government cancels the export tariff of ferroalloys, some products are still difficult to regain competitive advantage.

The Export Volume of Ferroalloys by India (Unit:mt)

Overall, the export tariff didn’t control the total export volume of ferroalloys, on the contrary, it bring about severe smuggling. It is indeed necessary to lower the export tariff. But it might be a long period because sufficient investigation is needed.

Chinese ferroalloys industry is still involved in price battle at the end of 2015. In the context of stable tariff rate and ever-increasing capacity, Chinese enterprises should transform their industry structures to solve existing problems.

• [Editor:Chen Zhen Seng]