It is reported that China Iron & Steel Association is researching on supportive policy for domestic iron ore mines, targeting a further cut on taxes and fees. The policy is very likely to be approved.
CISA and Metallurgical Mines' Association of China will jointly advise to lower value-added tax for domestic iron ore mines from 17% to 13%, cut resource tax from CNY 9 per tonne to CNY 6 per tonne and halve mineral resource compensation or subsume it into VAT."
An official from MMAC said "So far the supportive policy has been submitted to the State Council.”
An official from CISA pointed out that "Domestic iron ore is a bargaining chip for CISA to lead benchmark price negotiation hence the support to home ore will be of long term significance for China's performance in the price talk."
Currently domestic iron ore market is severely affected as large amounts of cheap overseas resources flood in. Imported iron ores are of higher grades, and also lower prices, so steelmakers all choose imported ores. Besides, domestic ore price keeps falling amid oversupply.
Latest statistics show 66% price decreases by CNY 20 per tonne to CNY 40 per tonne from a week earlier to CNY 590 per tonne for 66% ore fine acid dry basis CNY 600 per tonne for 65% ore fine acid dry basis and CNY 440 per tonne to CNY 450 per tonne for 65% fine acid wet basis in northern regions such as Anshan and Benxi. Southern regions including Jiangsu and Anhui also eye the same price drop, with 65% fine acid dry basis offered at CNY 680 per tonne and 65% alkalescent dry basis quoted at CNY 700 per tonne.
Large-scale production cutback and suspension have occurred in Hebei, the biggest iron ore producing province in China. Crude ore output in the whole country declined 3.5% from last year to 228 million tonnes during January to April of which Hebei produced 91 million tonnes down by 10.25%YoY.
Another problem is overcapacity. The CISA official revealed domestic iron ore market could hardly revive as downstream demand has not been fully released. Huge iron ore stocks tempt steelmakers to consume imported resources in a short term. Besides, some domestic mines witness heavy stocks which are unlikely to ease domestic oversupply.
Mr Guo Min, director of research department of China Mining Association said "Taxes and fees have been heavy burdens for domestic iron ore mines hence it is necessary that central government hammers out some preferential policies."
A Yishui-based miner complained that total taxes and fees account for 20% of the cost and it would observe losses since market price is already near the cost line.
A CISA official described that miners can not stay afloat under current situation. Luzhong Metallurgy & Mining Group Corporation, the biggest independent mine has been bothered by huge losses.
An official from the corporation said "There are many reasons such as changing exploitation conditions, but heavy taxed and fees are the most important reasons. Total expenses increased over 400% after the tax reform."
Mr Zeng Shaojin CMA standing vice chairman said "Central government should adjust taxes and fees for exploration, exploitation and concentration of domestic iron ore and regulate iron ore import tax to maintain reasonable import prices."
A Baosteel official disclosed the major burdens are VAT and resource tax. The former doubled and the latter surged 10 times after the tax reform in 1994. Tax adjustment will significantly influence miners' profits.