The Ministry of Commerce is studying a cut in tax rebates for steel products in a bid to curb exports and streamline steel production, according to sources close to the issue.

The changes would scrape a 9 percent tax rebate for hot rolled coils, and reduce tax rebates for cold rolled coils and coated steel products to 9 percent from 13 percent, according to an employee of Hebei Steel with knowledge of the matter.

"The final policy is yet to be decided, but the jitters have spread among steel makers," he said. "Although domestic steel makers are against it, the adjustment is very likely to happen."

The China Iron and Steel Association said it hasn't been notified, but it said it is not an opportune time to reduce tax rebates.

"Since products like hot rolled coils are mainly exported by larger steel makers, they will be hit hard if the rebate is cut," said Zhao Ju, a sales manager at Shougang Steel, a big steel firm in Beijing.

Competitiveness in European and Asian markets will be threatened and Chinese firms will lose market share to rivals from Japan and Korea, he said.

If rebates are cut, exporters will try to pass on the costs to buyers by raising prices, but it is difficult to hike prices in the currently weak international market. So the rebate adjustment will definitely impact exporters.

"The adjustment should not be targeted at the larger steel mills, because their profit margins are already very thin, and they are performing better than smaller mills in cutting emissions," said Zhao Ju.

But the rebate adjustment will ease foreign trade conflicts and reduce domestic producers' dependence on imported iron ore, one analyst said.

China exported 4.31 million tons of steel in April, a 205.2 percent rise from a year earlier, and from January to April exported total of 13.02 million tons of steel, a 98.8 percent year-on-year increase.

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