Tariffs Cut May Boost Chinese Zinc Imports

China will scale down import tariffs of 33 items from July 1st 2011 mainly energy and raw materials. Due to China's massive demand of bulk commodities the country's imports will far outpace exports after the tariffs cut.

Among the nonferrous metals involved in tariffs adjustment import tariff of zinc ingot, associated with futures market, slips from 3% to 1%. In accordance with the current zinc price the duty cut could reduce about USD 400 per tonne on import cost.

China imported zinc of 320,000 tonnes in 2010 compared to annual domestic production of 5.23 million tonnes, the imports accounted for 6% of the total.

Mr Peng Qiang GM of COFCO Futures Metals Division Deputy said that China has little demand of direct zinc imports so the tariff cut will not cause too much impact on domestic zinc prices. Since domestic prices are lower than international prices, margins are limited in import market. With 2% tariff cut, zinc trade becomes more profitable and attractive to foreign trade enterprises, which will discourage exports and promote imports.

As to supply and demand fundamentals, the low-income housing may start construction in August which will drive zinc demand upward and may also stimulate imports. But in the short term, due to low ratio of domestic zince price to foreign price the imports are hardly to jump in short term.

Other analysts believe that the import tariff reduction will lessen the cost of cross market arbitrage, leading the volatility of domestic zinc price more consistent with LME rate.