More Asian steelmakers are avoding ferrosilicon shipped from countries that do not produce the metal, as it could possibly be Chinese material that has been transported out of China without paying export tax, mill and trade sources said Friday.

Vietnam for example does not produce ferrosilicon, and the material shipped from Vietnam is believed to be of Chinese-origin and transported through the borders on trucks or on boats without paying the 25% export tax, industry sources said.

 

In some cases, the ferrosilicon certificate of origin, which is required to clear Customs, states China, but the material was shipped from a third country, possibly without paying the tax, industry sources said.

 

In addition, earlier this year, some steelmakers in Japan experienced delivery of ferrosilicon that did not meet size and other quality standards, and have asked local traders to avoid Chinese supplies that could have been imported into Japan via third countries without paying the 25% export tax, said one Tokyo trader.

"This is also a compliance issue for the Japanese mills," said the Tokyo trader.

It was reported on February 23 that a Japanese electric arc furnace operator received off-spec ferrosilicon with high impurity.

One Asian steel mill has decided to avoid purchases of ferrosilicon that could have been shipped from third countries, from this quarter, by buying directly from Chinese producers, or from trading houses that buy from Chinese producers on long-term contracts, said a source at the mill.

The mill typically uses more than 100 mt/month of ferrosilicon and was buying from various traders.

On-time delivery could not be guaranteed if supplies were from a variety of routes, the source said.

A second Asian mill source said his company buys directly from a producer on long-term contracts, and when buying on a spot basis asks suppliers to submit documents issued by the Chinese government that the cargo has cleared 25% export tax payment.

Japanese and Korean traders said the Chinese government has strengthened patrols along the borders since the beginning of this year which has reduced traffic of untaxed material.

"The spread between taxed Chinese material and untaxed volumes was $200/mt before -- now it has narrowed to $50-100/mt as smuggling seems to have become more difficult," said one Japanese trader.

 

But one source cautioned that volumes of smuggled cargoes rise during Chinese rainy seasons when rivers become more navigable and there are more boats available for river transport.

Japan imported a total of 103,303 mt of ferrosilicon over January to March. 55,862 mt came from China, and 5,229 mt from a Southeast Asian country with no ferrosilicon production.

South Korea has imported a total of 79,000 mt over January to April. 51,988 mt came from China, and 2,175 mt from a Southeast Asian country with no ferrosilicon production.