On January 1st 2019 China took the decision to reduce temporarily Ferrochrome customs export tariffs from 40% to 15%. Chinese government implemented this export tariff to support domestic production, as part of a series of measures to cope with the impact of the intensifying trade war with the United States.
China’s role in the ferrochrome industry
China is the world’s largest ferrochrome producer, which is a key input in the production of stainless steel. The development of the domestic manufacturing industry was partly helped by China’s policies to protect domestic industries through export and import duties.
Currently, China produces around 50% of the world’s stainless steel and is the largest consumer of both chrome ore and ferrochrome. According to Grand View Research, the stainless steel market is projected to expand at a CAGR of 5.2% by 2025. Automotive and the construction sector are the key factors leading the growth. So, we can expect to see strong demand growth for ferrochrome and chrome ore.
Unlike other leading ferrochrome producing countries like South Africa, China has no chrome ore production. Nevertheless, China has some advantages in ferrochrome production including low power costs, low capital investment costs, a good infrastructure, and cheap labor that help China to fiercely compete.
How lifting export tariffs would impact the ferrochrome market?
Due to its dominant market position, both the floor and ceiling ferrochrome prices are established by China and other ferrochrome producing countries are price followers. The tax reduction on ferrochrome exports could lead to lower ferrochrome prices, Chinese producers will be able to sell on the global market at more competitive prices, especially in Asia, where buyers could see an opportunity to source cheaper material from Chinese producers. Also, countries such as Russia and Kazakhstan, who are ferrochrome producers and possesses their own feedstock resources and lower production cost than Chinese producers could be forced to lower their prices when faced with Chinese competition to maintain market share.
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