The flow of Chinese ferrosilicon routed through Vietnam to evade a 25% export tax will likely fall following a customs' crackdown on smuggling in Guangxi province, but new routes will inevitably emerge, Asian market sources said Friday.
One Hanoi-based trader said Chinese ferrosilicon prices in Vietnam had surged 25% in July, due to some extent to the crackdown late last month.
Chinese ferrosilicon offers were at $950-$1,000/mt, basis unknown, this week, up from $800-$900/mt a month ago, the trader said.
Customs officials in Guangxi province on June 30 arrested about 100 people involved in routing ferrosilicon through Nanning city to Vietnam, a Japanese trader said.
"One of the arrested traders contacted business partners outside China; it looks like the investigation could take one month," the Japanese trader said.
The trader in Hanoi said the investigation appeared to have been under way for some time, as ferrosilicon supply in Vietnam has tightened since April, notably in southern Vietnam.
Yinchuan and Qinghai were also major supply bases for ferrosilicon moved to Vietnam via Nanning, one source said.
Another Hanoi-based trader said there were stocks available in northern Vietnam, and added Chinese ferrosilicon evading the 25% export tax had become so commonplace that he has to remind his overseas customers that there are risks involved with his material.
"Some Vietnamese traders are buying Chinese ferrosilicon at above $1,000/mt CIF Vietnam currently, paying the 25% export tax, as they have delivery commitments but their supply chain has been cut," the first Hanoi trader said.
A ferrosilicon producer in northwest China said: "With smuggling being eradicated, more buyers are turning to us. Our company delivers about 2,000-3,000 mt/month to Japan and Korea now; in January, deliveries would have been about 1,500 mt."
A Taiwanese trader said: "Because a lot of people were arrested, Nanning operations will slow."
NEW SUPPLY CHAINS INEVITABLE
However, traders said new supply chains would inevitably spring up as long as the Chinese government continued to levy the 25% export tax.
"Arrests in Nanning, part of normal life," said the second trader in Hanoi.
The Nanning route is one of several routinely used to transport ferrosilicon out of China, and there were currently offers for untaxed ferrosilicon to buyers from traders in Hong Kong, South Korea, Taiwan and China, sources said.
Ferrosilicon supplies have also diversified as a result of new production coming on stream in Malaysia and Russian producers increasing sales in Asia in recent months.
Some sources said lower Russian ferrosilicon prices were having more impact on trade than the crackdown.
A Russian producer said his prevailing prices to Japan were $870-$920/mt CIF Japan, while several traders said a Japanese steelmaker was heard buying 1,000-2,000 mt from a Russian producer at around $850/mt CIF Japan, and an offer below $870/mt CIF Japan for Russian material had also been heard.
