How Will Steel Scrap Invoice Scandal Affect Iron Ore and Steel Market? SMM Analyzes

SHANGHAI, Jul. 24 (SMM) – China’s State Administration of Taxation has launched a nationwide crackdown, mainly targeting 12 provinces, including Jiangsu and Zhejiang following exposure of false steel scrap invoice in Anhui last week. 

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This event will have big impact on medium and large steel mills, especially SOEs, SMM understands. Scrap metal value-added tax (VAT) invoice has been suspended from issuing in Jiangsu, which will affect steel scrap delivery to steel mills. 

If the crackdowns last for only a short time, steel mills could produce normally with steel scrap stocks on hand.

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However, if the checks last for a long time, steel mills may be forced to reduce steel scrap use ratio, which will, in turn, boost demand for iron ore. Meanwhile, steel scrap will pile up and its prices will drop as a result. The decline in steel scrap prices will put some pressure on iron ore prices, though, since the two can be substituted for each other in steelmaking.    

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