China Daily reported that the Chinese steel industry may suffer losses in the third and fourth quarters due to the government decision to remove export rebates, putting further pressure on mills.
Leading industry experts said those mills have already suffered from falling product prices and soaring raw material costs.
Mr Yu Liangui a senior analyst from consulting firm Mysteel.com said "The move is a huge blow to Chinese steel mills especially those State owned enterprises producing industrial steel plates forcing them to cut production."
He said that "Small and medium sized steel mills will suffer from the financial strain and create more consolidation opportunities for larger steel mills."
The Ministry of Finance said in a statement rebates on hot rolled coil and some cold-rolled coil and galvanized products will be removed starting July 15th. Currently, the rebates of hot rolled coil and cold rolled coil are 9% and 13% respectively.
This is the first move to reduce tariffs in three years. China raised steel export rebates to 9% in June 2009 and the latest cuts were made on July 1st 2007.
Mr Qi Xiangdong deputy secretary general of China Iron and Steel Association said "Overcapacity in the steel industry and growing steel exports in May stimulated the government to scrap the tax rebates."
According to customs data China steel exports almost doubled YoYr in the first five months due to strong demand from Southeast Asia and South Korea which is the result of global economic recovery. Exports of Chinese steel products surged to 17.9 million tonnes in the first five months up by 127%YoY.
The decision to remove export rebates comes amid growing export risks imposed by trade measures from the United States and the European Union. In addition, the Chinese government is striving to cut energy consumption and eliminate outdated production methods..