In recent developments, heightened surveillance by Chinese Customs on steel exports is significantly disrupting shipments destined for ASEAN countries. This increased scrutiny, initiated approximately three weeks ago, is aimed at ensuring VAT compliance by Chinese exporters, a long-standing issue in the region.
According to regional trading sources, shipments from Chinese ports like Qingdao and Tianjin are experiencing delays as exporters must now furnish proof of VAT payment before cargoes can be cleared for shipment. This delay particularly affects products such as wire rod, galvanized, and pre-painted steel, crucial for projects across the Philippines.
Local traders in Manila have indicated that Chinese suppliers are now requesting their Philippine counterparts to bear the burden of additional costs incurred due to VAT compliance. The uncertainty surrounding the arrival of delayed cargoes, originally slated for June, is adding pressure on traders and their customers alike, with negotiations on how to handle these unexpected costs ongoing.
In addition to standard steel products, exports of zinc, aluminium, and magnesium alloy-coated steel from China, previously avoiding VAT obligations, are also caught up in the crackdown. This development has resulted in a noticeable absence of new offers in recent days, affecting regional supply chains and prompting traders to consider alternatives or potential cancellations for pending orders.
Traders in Hanoi have reported that significant volumes of hot rolled coil, wire rod, HDG, and ZAM destined for Vietnam are currently in limbo due to these enforcement measures. Many traders are now avoiding discussions related to non-VAT offers, indicating a shift in market dynamics driven by the regulatory clampdown.
The implications of these actions are far-reaching, affecting not only trade flows but also pricing dynamics within the ASEAN region. Previously, Chinese private mills, by avoiding VAT payments, could offer their products at a discount of 5-8% compared to state-owned mills. With enforcement tightening, prices are stabilizing as these discounts vanish, aligning more closely with VAT-compliant state-owned mills.
The situation underscores the complex interplay between regulatory compliance, market dynamics, and the operational challenges faced by traders and suppliers in the global steel trade. As the industry navigates these changes, stakeholders are bracing for further adjustments in supply chains and pricing strategies amid ongoing regulatory shifts.
