China will cancel tax rebates on exports of most steel products this year, while several high value-added steel products will have their tax rebate cut to 5%, said a senior official with the National Development and Reform Commission (NDRC).

"The central government intends to reduce domestic steel demand and suppress the overheated steel product export market by canceling export rebates," the official who asked to remain anonymous said.

"Only some high value-added steel products like cold-rolled steel sheet and high grade steel products will be eligible for the 5% export tax rebate," he said.

The government has not yet decided when to implement the new policy, the official added.

The current price gap between domestic and international steel is causing an increase in domestic steelmaking capacity and steel product export.

China's steel product exports increased 139.3% to 8.75 mln tonnes in the first two months of 2007, while steel product imports were down 4.6% to 2.7 mln tonnes from the same period last year, according to the General Customs Administration.

One of the main reasons for canceling the tax rebate is to encourage the elimination of out-of-date steel production capacity. The Chinese government plans to phase out 30 mln tonnes of iron smelting capacity and 35 mln tonnes of steelmaking capacity this year. A target to eliminate 100 mln tonnes of out-of-date capacity has been set for 2010.

"We intend to phase out out-dated and high energy-consuming facilities which mainly produce low end products for export, this will help preserve both China's mineral and energy resources," he added.

The Chinese government made a previous steel product export tax rebate cut from 11% to 8% on Sept. 15, 2006, but this has been ineffective in cutting out-of-date capacity or steel product export levels.

The government imposed a further 10% steel billet export tax on Nov. 1, 2006, this was in addition to the export tax rebate that was canceled on April 1, 2005.

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