China ups its fight against scrap smuggling for export
Source: Mysteel
Jun 06, 2018 19:45
China’s General Administration of Customs is cracking down on the smuggling of steel scrap for export, announcing on Wednesday that its officers conducted a special operation overnight between June 4 to June 5 which netted a total of 2.41 million tonnes of smuggled steel waste and scrap valued at an eye-watering Yuan 4.8 billion ($750 million).
The June 6 announcement also said some 65 groups of smugglers had been identified, with 245 suspects arrested and material evidence seized.
Prior to this operation, China Customs said it had been tracking a sharp increase in the export volume of steel waste and scrap for some time, and suspected that some exporters were declaring the ferrous scrap at 30%-60% below value to avoid high Customs duties and taxes. It said that the 2.41 million tonnes seized this time was also smuggled this way and was destined for Southeast Asian countries such as Vietnam, Thailand, Singapore, Malaysia and Indonesia, Mysteel notes.
“This kind of smuggling activity started last year when the central government launched its blitz to totally eliminate all induction furnaces throughout the country by the end of June 2017,” an official from a Jiangsu-based electric-arc furnace (EAF) steel mill said. “Exports of ferrous scrap increased a lot since then,” he said, adding that the surge in international steel scrap prices was also an important factor.
Prior to the clamp down last year, IFs consumed about 100 million tonnes of steel scrap annually, the official estimated.
But there may be other reasons for the rising incidence of smuggling in South China, a Shanghai-based steel scrap trader pointed out.
“Actually, there are not as many EAFs in South China as there are in East China, so when all induction furnaces in that part of the country were shut down in 2017, local demand took a plunge which depressed the prices,” the trader explained. Aggravating the problem was that ferrous scrap collected in South China (especially those stocks held by small traders) couldn’t be redirected to the area of greater demand – East China – because most steelmakers there have their own network of scrap suppliers that they rely on.
“Thus, the price gap between the domestic and overseas ferrous scrap market prompted some South China traders to export more steel scrap. Traders chose to disguise their steel scrap exports under other HS codes to evade the hefty 40% export tariff imposed on steel scrap,” the trader explained. “At present, the mainstream CFR price of imported carbon steel scrap in Southeast Asia is $370-390/t.”
By contrast, as of June 6, Mysteel’s price for 6-8mm scrap in Guangzhou in South China’s Guangdong province was at Yuan 1,905/t ($297/t) excluding the 16% VAT. China has long imposed export taxes on scrap to ensure that local steel producers have sufficient supplies and to help keep steel prices in check, especially in times when the prices of imported raw materials such as coal and iron ore spike, Mysteel notes.
The trader also said that as much of the scrap being shipped abroad is return scrap – such as ‘new cut’ scrap from cold rolled coil obtained from local household electric appliance manufacturers – and that the good quality made this scrap especially popular in many South Asian countries. This also drove the export or smuggling of such scrap.
That said, the special operation currented earlier this week by Customs may not have been a single simple action, as Customs had obtained some criminal evidence of smuggling groups some time ago, according to its report. “In fact, the central government has been aware of the practice since in late 2017,” the EAF mill’s official said.
“The operation this time may be a warning to all traders who are involved in such kind of steel scrap exports that the time has come for them to cease their illegal activity,” the trader also said, adding that the purpose is to defend the present system of Customs duties and taxes and to regulate the availability of local steel scrap resources, especially in South China. “In the future, additional new EAFs will be put into production and using local steel scrap is seen as a win-win option for both steel mills and traders,” he said.
China’s steel scrap exports began to increase sharply from the middle of 2017. Last September, the export volume reached an all-time high of 508,120 tonnes, according to the official Customs data, but by April, the volume had plunged to just 86,982 tonnes.
The search-and-arrest operations involving some 363 action teams started simultaneously from 10pm on June 4 in North China’s Tianjin municipality, in Hebei, in East China’s Shanghai municipality, Jiangsu and Zhejiang, and in South China’s Hunan, Fujian, Guangdong, Guangxi and Hainan, the Customs statement said. Officers from the Guangdong Sub-Administration of China Customs took part in the operations, together with the anti-smuggling departments of 17 local Customs districts comprising those from Tianjin, Shijiazhuang, Shanghai, Nanjing, Hangzhou, Ningbo, Fuzhou, Huangpu, Xiamen, Guangzhou, Shenzhen, Gongbei, Jiangmen, Zhanjiang, Changsha, Nanning and Haikou.
Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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