China Copper Smelters Mull Export Increases After Tax Cut

Reuters reported that China's copper smelters plan to increase refined copper exports following a recent tax adjustment that have reduced their costs to export and made such trades more attractive.

Two sources at smelters said that the move could encourage smelters to ship thousands of tonnes of refined copper from China to London Metal Exchange warehouses and weigh on global prices which have so far shed more than 13% from the year's high hit in February to USD 7,415 per tonne.

A sales manager at a large smelter, referring to the H2 of the year said that we plan to export at least 10,000 tonnes of copper a month. Total exports from China could be between 20,000 tonnes and 30,000 tonnes per month.

Should domestic demand remain weak and overseas prices stay higher, exports from China the world's top consumer may surge to as high as 180,000 tonnes in the second half of the year compared with just 9,336 tonnes in the same period last year.

Benchmark 3 month LME copper prices were more than CNY 1,000 per tonne higher than the most active copper contract in Shanghai. China's refined copper exports jumped 31% in the first 6 months to 192,560 tonnes versus a year ago as smelters such as Jiangxi Copper and other big trading firms shipped out large amounts under a duty free tolling scheme and re exported bonded copper stocks to take advantage of higher LME prices.

The only way for a smelter to avoid China's export tax on copper is to be registered as a toll smelter with permission to import copper raw materials and then export the finished metal tax free.

Seven large copper smelters authorized by the government for toll trading were previously required to pay 3% of import value of the raw materials when they shipped out the finished metal.

But the Chinese tax bureau has since July 1st 2012 scrapped the 3% tax for tolled copper exports. Smelters are instead required to pay a 17% value added tax on the fees they receive for processing the metal.

A unit of Jiangxi Copper said that the latest adjustments have cut export taxes by around 75% compared with the previous policy. The overall tax reduction means that Chinese smelters, looking to profit from higher LME prices will now be able to start exporting at a narrower price range than before.

Traders said that Chinese smelters had begun to raise their overseas purchases of spot copper concentrate, a key ingredient for making refined copper. The increase in imports which have come amid tepid domestic demand suggested plans by smelters to step up production for sales overseas.