China scrap market remains cautious about new VAT policy
Although China’s new value-added tax (VAT) policy for scrap has officially taken effect from March 1, how it will affect the domestic steel scrap market has yet...
Starting March 1, Chinese scrap suppliers and traders were required by the country's Ministry of Finance (MOF) to either apply the simplified taxation method or the general taxation method in their selling of scrap materials.
The simplified taxation rate is 3% of a company's sales, while the general taxation remains 13% of the added value.
"The introduction of new scrap taxation method, together with the existing taxation practice, in essence, is to regulate China's steel scrap supply chain, making sure that all the parties involved - and those in the upstream supply chain in particular - to conduct their businesses in a legitimate and orderly way and to end tax evasion in the market," a steel scrap procurement official in a Chinese steel mill told Mysteel Global.
In the long run, this will lead to a more sustainable supply system with scrap collectors, scrap yards, and steel mills all playing their part properly. And as for those qualified scrapyards, they will be able to have investments to expand their scrap collecting and processing capacity and to improve the quality of their scrap supplies, according to the official.
Chinese scrap traders in no rush to take action
Many scrap traders in China admitted that they're yet to make any adjustments. "Even though steel producers have offered us two taxation options, we still choose to use the traditional 13% rate for now, as we don't want to be the first one to try the new mode," commented a scrap trader with a scrapyard approved by China's Ministry of Industry and Information Technology (MIIT).
"However, we only deliver scrap to mills in small quantities for now and we prefer to hold off selling, waiting for clearer market signals," she admitted.
Another MIIT-approved scrap trader also shared the same view. "The new tax policy may benefit us if our suppliers can provide 3% tax invoices, as this 3% can offset part of our VAT payments. Moreover, MIIT-approved enterprises can also enjoy a substantial refund of up to 30% on VAT payments, which might further reduce our production costs," he explained.
However, during the past week, "it was still difficult for our suppliers to issue tax invoices, as most of them are micro- and small-sized businesses," he added.
Meanwhile, it is even harder for those scrap traders without MIIT's approval to make adjustments, Mysteel Global learned. "We usually supply scrap to some small-sized steel mills who didn't ask us to afford tax bills strictly before. But once we were forced to pay 3% VAT while we can no longer enjoy any refunds, our costs will rise definitely," the trader complained, adding that his yards are in no rush to sell recently.
Some steelmakers raising scrap buying prices to attract more deliveries
The wait-and-see stance adopted by many Chinese scrap traders has resulted in a significant decline in scrap deliveries to steel mills, with some mills raising their scrap buying prices to attract more deliveries to maintain normal production, Mysteel Global noted.
"During the first three days after the new tax policy went into effect, we did try to halt receiving scrap deliveries - to give both our traders and us some time to adapt to the new policy," a mill official in East China's Jiangsu province said.
"And with the recent recovery in finished steel prices, our current scrap stocks at hand couldn't meet our consumption needs, so we had to raise our scrap buying prices to attract more deliveries," he added.
Another official with an independent mini-mill told Mysteel Global that "unlike those large-sized integrated mills, our scrap supply is not very stable, so we often need to pay more to secure sufficient material. And since March 1, we've asked our scrap traders to provide at least 3% tax bills when delivering. In order to maintain steady scrap arrivals, we have to bear the increasing VAT costs for our suppliers."
However, he also shared that his steel plant won't be able to pay for the tax all the time. And since he doesn't have any other better options to encourage scrap deliveries for now, so "the only thing we can do now is wait," the official added.
In tandem, Shagang Group (Shagang), China's leading electric-arc-furnace steelmaker headquartered in Jiangsu, has decided to raise its steel scrap procurement prices by Yuan 80/tonne ($12.7/t) effective from March 7, as Mysteel Global reported.
Following Shagang's latest price adjustment, more than 50 Chinese mills have also lifted their scrap buying prices accordingly in these two days, Mysteel Global noted. As of March 7, Mysteel's steel scrap price index increased by Yuan 55/t on week to Yuan 3,705.3/t on delivery and including the 13% VAT.
Written by Lindsey Liu, liulingxian@mysteel.com
This article has been published under an exchange agreement between MySteel Global and SteelMint.
