China changes export tax on steel and aluminium products

China is going to lower the export tariff on aluminium alloy rod and bars (circumference less than 210mm) from 15% to 5% effective 1 December 2008. This 10% adjustment in the export tax is expected to have a minimal effect on Chinese aluminum products' exports due to a collapse in aluminium demand from international markets and lower aluminum price on the LME.

As of 1 December 2008, the current 5% export tax on hot rolled coil/plate and large section will be revoked; and alloy plates, alloy strips and alloy wire and rod will also be exempt from export taxes. We understand that the government is still very cautious about opening the door to exports. The export tax changes will probably not fundamentally improve the steel export momentum. No overseas traders will buy large volumes of steel from China for future delivery with a one- or two-month time lag, regardless of the export tax position, given the huge price volatility in global markets at the moment. We believe that steel exports will continue to fall in November and December.

Last week, Macquarie attended the 2008 China International Nickel & Cobalt Industry Forum held by Antaike in Nanjing, Jiangsu province. The key takeaways from the conference: The cost of Chinese nickel pig iron production has fallen dramatically, along with the price drop in ore and coke input feed; Chinese production of primary nickel through metallurgical technology has turned cash positive since mid-October due to a major fall in sulphur acid prices; Chinese imports of nickel ore could decline in 2009, reflecting slower demand in nickel pig iron production and a huge amount of ore stockpiled at Chinese ports; for 2008, China will record its first drop in reported stainless steel production since 1997 due to a major cut in supply at Chinese steel mills through the 2H08 and to deterioration in demand.

The National Bureau of Statistics released its industry production data for October, in which the crude steel production reached only 35.9mt, down by 9.4% MoM and 17% YoY. The October figure was equivalent to an annualised rate of production of just 423mtpa, compared with 482mtpa in September and a peak of 571mtpa in June. This means that, in October, Chinese production was running at a rate 26% below the June peak and was the lowest rate of production since May 2006.

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