Iron ore prices slipped to fresh 5-1/2 year-lows overnight, with Chinese buyers staying away amid hopes prices would drop further especially if Beijing shuts a controversial steel export tax loophole in the new year.
Benchmark 62 percent grade iron ore for immediate delivery to China .IO62-CNI=SI fell 0.3 percent overnight to $67.90 a tonne, lowest since June 2009, data from the Steel Index shows.
Steel rebar futures in Shanghai were steady on Thursday morning, down 0.1 percent to 2,537 yuan ($408) per tonne. Dalian iron ore futures rose 1.45 percent to 489 yuan per tonne.
With domestic demand no longer growing to meet higher steel output, overseas markets have provided a lifeline for Chinese producers, with exports up nearly half in the first 11 months.
But exports could be hurt if China closes the loophole that allows steel mills to earn tax rebates on shipments by adding boron to their products.
"Three quarters of the export increase this year has relied on the government providing tax rebates for the addition of just 0.0008 percent of the trace element of boron," said Wu Xichun, China's former metallurgy minister and an adviser to the China Iron and Steel Association (CISA).
The rebate allowed exporters to sell boron steel rods at an average price of $497 per tonne in the first three quarters, versus $730 charged for boron-free material, Wu said. CISA, warning of the risk of growing trade frictions, has called upon the government to resolve the issue and changes are expected soon.
"We are hugely concerned that if China were to only remove the 13 percent rebate on boron-added steels, at least 5 million tonnes per month of iron ore demand would be destroyed," said Melinda Moore with Standard Bank.
"This has the potential to send iron ore prices well below $60/tonne in the second quarter next year if domestic demand does not pick up to compensate for steel export losses of at least 2-3 million tonnes per month," she added in a note.
No changes were made to China's 2015 steel export tax rates in a list published by the government earlier this week, but rebate adjustments are expected to be announced separately.
Wu said that even without the rebates, overcapacity had already driven domestic steel prices to the lowest in the world.
Source: Reuters |
