The State Council has decided to cut the iron ore resource tax to 40% of existing rate in order to improve production environment of Chinese miners, promote structural adjustment, support upgrading and coordinated development of upper and downstream industries, as well as to secure resources supply of the whole country. The reduced tax will be implemented from May 1st, 2015.
MPI’s comments: In virtue of the new tax mitigation, tax levied on Chinese miners was reduced by 16.95-31.68 yuan/t concentrate, which only accounted for 3.1-5.7% of iron ore price. It will be difficult for Chinese miners going out of the woods by the tax reduction against existing oversupply. Due to low production cost of Big Three, iron ore import price is possibly to reduce further.
Two Listed Steel Companies out of 16 Lost in Profit
According to 2014 Annual Report published by 16 steel companies listed on A Share Market up to April 8th, 14 companies gained benefit except for Lingyuan Iron & Steel Co. Ltd and Bayi Iron & Steel Co. Ltd. Baosteel maintained a leading position in the steel industry with net profit of 5.792 billion yuan.
MPI’s comments: Generally speaking, the steel industry in 2014 showed a better condition of profitability than 2013. In the first quarter of 2015, large and medium scale steel companies lost as a whole although iron ore import price lower than 60 USD, which represented weak demand in the market and more serious economic downturn.
