Last week, China withdrew the export tax rebates on 400 products, the first time that tax breaks have been removed since the financial crisis began in September 2008.
Exporters immediately complained that they had been badly hit and that the withdrawal of the tax breaks, coupled with the rising value of the renminbi, made their products uncompetitive.
Hot rolled coil steel, for example, made in China is now apparently uncompetitive in Asia without the tax breaks, according to Steel Business Briefing, although Chinese steel mills can still make money selling it into Europe.
The steel industry was one main target of the rebate withdrawal, since China is trying to force consolidation in the sector. Steel exports between January and May were up 127% from 2009 to 17.96m tons. Experts predicted the removal of the tax breaks would force smaller mills to shut and overall production to drop.
But this, of course, is China, and the ingenuity of Chinese mills knows no bounds. Michelle Applebaum of Steel Market Intelligence has discovered that steel mills are simply adding small quantities of boron to their steel and reclassifying it so that they can continue to enjoy the tax rebate.
"Boron-added hot rolled coil and H-beams will continue to be exported enjoying a 9% rebate. Boron-added SS400 HRC is currently offered at $560-570 a ton from China, but SS400 without boron is $600-610 a ton," said Ms Applebaum.
Adding 0.08% boron makes no real difference to the steel’s chemistry but allows it to be called "alloy steel", rather than normal steel. There are some questions, however, about whether the boron-added steel has problems with some welding and bending applications.
The steel mills are shipping the boron-added steel in small sizes to avoid the suspicion of the Chinese customs. And there you have it: another new market created in just a few days.