China Decides its Export Tax Position

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In the context of the likely impact on non ferrous metals prices, we reported a couple of weeks ago about the possibility that China would remove the export tax on primary non ferrous metals.  We believed  that if the export tax  was removed there could be a flood of primary metal coming out of China as producers sought to maintain production levels by dumping metal on the export market. In fact what has happened, according to Reuters, is that China has scrapped taxes on the import of copper, nickel and cobalt concentrates providing those concentrates are used to make refined metals for exports. Currently importers pay 17%  VAT on imports and a further 10% export tax on copper and 15% on unwrought nickel. The impact could be to further depress prices if Chinese smelters export in any volume. Currently however domestic prices in China are significantly above the London Metal Exchange so it is unlikely smelters will export in any volume unless the LME and SHFE price levels converge.

In addition the rumor is primary aluminum will be allowed to be imported duty free providing it is used for the export of semi finished aluminum products such as sheet, bar, profiles and billets. The likely affect  on the aluminum market could be to stabilize the primary ingot price as Chinese purchases add some additional demand in the market. But it can also depress value add premiums for semi finished products as the additional semi finished products undercut  western producers. Many Chinese suppliers have been notoriously unreliable on deliveries this last year or two and with the currently depressed level of demand it is unlikely buyers will be clamoring at the door with orders. If you don’t know when your metal is going to be shipped and you have no confidence the underlying metal price will be at or around current levels in 3-6 months time why would you commit to an unreliable supplier ” even if they were a few cents cheaper?

The word from our people on the ground is they expect the ingot price to fall in China during this quarter,  and believe that capacity still exceeds demand by a wide margin. In addition, the thinking is  that the central government will start supporting the export of primary ingot again from the start of February. If that happens, the price of aluminum could drop below $1400/ton. We should have more details in the second half of this month and will keep readers posted.

–Stuart Burns

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