The global metals market is abuzz with reports that China will reduce or remove metal products export tax rebates effective July 1.

According to the Ministry of Finance, on export of more than 500 products value-added tax rebates will be cancelled and on more than 2,000 others rebates will be reduced.

Easing pressure

The main purpose of this rebate cut is to ease growing pressure from record-high trade surplus and to rein-in the exports of energy and resource intensive products from the country.

The 8-11 per cent export tax rebates on aluminium rod, bar, profiles and wire products will be completed removed; but the 11 per cent tax rebate on aluminium sheet and strip, and the 13 per cent rebate on foil and tube will remain in place, experts said adding that the 13 per cent export tax rebates on zinc, lead, nickel and tin products will be cut to 5 per cent on July 1.

Cut effect

Tax rebate cuts on rod, bar, profile and wire will have immediate effect on the Chinese domestic aluminium industry. It will impact domestic primary aluminium demand as also Shanghai futures exchange-listed aluminium contract prices, analysts said.

In 2006, Chinese exports of rod, bar, profile and wire products accounted for roughly 60 per cent of total Chinese exports of aluminium downstream products as a result of their beneficial tax treatment (8-11 per cent export tax rebate) compared with primary aluminium (15 per cent export tax).

The removal of export tax rebates on extrusion and wire products may reduce the margins for the sellers and has the potential to reduce export volumes in the short term.

It will potentially leave more products in the Chinese domestic market, putting domestic prices under downward pressure, it is argued.

However, the exemption of aluminium sheet and strip products from the list will provide domestic smelters and merchants with some scope to shift business focus to exporting other downstream aluminium products to take advantage of higher export tax rebate.

G. Chandrashekhar