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Michelle Galanter Applebaum
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Michelle Galanter Applebaum is a long-time independent steel industry analyst with nearly 30 years of experience following the sector as well as an adjunct professor at Lake Forest College in Chicago. Ms. Applebaum spent over 20 years at Salomon Brothers in New York and Chicago. During her years... More
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Steel Market Intelligence
  • China Announces Another Steel Capacity Closure Campaign - Risk of High Cost, Low Priced Exports Remain 2 comments
    May 28, 2010 4:57 PM
    Summary
     
    Two news items are likely to provide supportive press as well as Street conclusions – rumors the past week of a likely “export tax rebate elimination” as well as an overnight report that Beijing came out with a new plan to eliminate “backwards and polluting” iron and steelmaking capacity.
     
    While both of these will likely be interpreted as good news for global steelmakers, we have a more skeptical view; Beijing has announced “new capacity eliminations” twice/year for the last half-dozen years – so far Beijing has been completely impotent in trying to close these mills and address overcapacity.
     
    Similarly, the export tax rebate rumors address an adjustment in the spreads – not an elimination – the net result will likely actually increase the rebate for value-added steels while reducing the rebate for commodity steels.
     
     
     
    Background
     
    Overnight the Chinese steel website mysteel.net carried a story of a new plan for the elimination of capacity in 6 key Chinese industries including ironmaking, steelmaking, aluminum smelting and cement. Announcements of planned obsolescence of older, smaller, higher costs steelmaking facilities have generally come once or twice/year for the past half-dozen years and while well-intentioned, have typically not had any teeth – there’s been very little rationalization of high cost iron and steel capacity in China primarily because whenever the steel market weakens in China – as it is currently – the government generally bails out the money-losing mills with increased subsidies in other forms.
     
    Likewise continued reports of what’s being called “export tax rebate reductions” would seemingly be good news to the west, and potentially serve to similarly hasten closures by reducing the subsidy to export – again this seems well-intentioned however, from the information we have, it would appear that while the VAT rebate on commodity hot-rolled steel would be eliminated, the rebate on the value-added steels would rise actually from 4% to 9% - net – VAT rebates are based on the spread between the raw material cost and the final product price – something that at times is a bit elusive to our sales-tax oriented thinking.
     
    So while both of these moves will like get both press and Street attention as good news for the West, we’ll take both moves with a very large grain of salt.
     
    Michelle Galanter Applebaum
     
     
     
     
     


    Disclosure: No positions
    Themes: steel
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Comments (2)
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  • fairtradeguy
    , contributor
    Comments (2) | Send Message
     
    When you couple this series of articles with the latest "jobs" report (virtually all job growth was at taxpayer expense) it paints a grim picture. Further, other global indexes indicate stagnation in demand of the most basic of metallic needs. Time has long passed to get trade right and fair and actually create jobs in an economy that has historically pulled others along. The ship of fools in DC remains just that.
    4 Jun 2010, 09:59 AM Reply Like
  • Michelle Galanter Applebaum
    , contributor
    Comments (33) | Send Message
     
    Author’s reply » The ship of fools in DC is getting it more than anyonehas gotten it in as long as we can remember; keep writing/speaking/educa... because the rest of the country is getting it in a way I truly couldn't have ever imagined. But keep the volume on max and never give in, never give in, never; never; never; never.
    4 Jun 2010, 11:33 PM Reply Like
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