The Chinese government's proposed reduction of export tax rebates for aluminum products is causing concern in the aluminum fabrication industry that profits will be heavily affected, industry insiders told Interfax today.
"The export tax rebate on aluminium foil, less than 2 millimeters thick, will probably be reduced from a current 13% to 5% in early June, meaning that export profits will be reduced by 8%. China currently relies on exports to balance the domestic market," a senior official, surnamed Liao, with Yunnan Xinmeilu Aluminum Foil Co. Ltd. told Interfax.
There is market expectation that the Chinese government will reduce the export tax rebate on some aluminum products from current levels of between 8% and 15% to between 0% and 13% in early June, as a result of April aluminium-product exports reaching a new historical high.
According to a Ministry of Finance (MOF) announcement today, the Chinese government will impose an export tax on steel products of between 5% and 10%, as well increase the export tax on billets, ferroalloy products, unwrought zinc and nickel ores to between 10% and 15% on June 1 this year.
The policy is aimed at further reducing exports of high energy-consuming and highly polluting products, while encouraging the import of raw energy materials and low-level resource products in an attempt to address China's trade imbalance, according to the document released by the MOF today.
Five leading domestic aluminium-foil producers recently proposed to the central government that they maintain the current 13% aluminium foil export tax rebate in order to avoid causing large industry losses and domestic market oversupply, according to Liao.
The five aluminium foil producers are Yunnan Xinmeilu Aluminum Foil Co. Ltd., Xiashun Aluminum Foil Co. Ltd., North China Aluminum Co. Ltd., West China Aluminum Co. Ltd. and Jiangsu Daya Aluminum Co. Ltd.
Micron-gauge aluminium foil production in China is expected to reach 210,000 tonnes this year, up 44% from last year while domestic market consumption is only expected to reach 98,000 tonnes.
Xinmeilu Aluminum exported more than 3,000 tonnes of micron-gauge aluminium foil last year, accounting for 5.5% of China's total 55,000 tonnes of exports, she said.
The possible export tax rebate reduction will decrease aluminium product export volumes and cause severe oversupply problems, according to the five aforementioned aluminium foil producers.
"We hope the government will continue to support aluminium foil companies through its export policy, as aluminium foil sector development conforms to China's aluminium industry policy to encourage the production and export of high value-added aluminium products," she added.
Liu Defei, a Beijing Antaike Information Co. Ltd. analyst, commented that the tax rebate reduction would negatively affect China's aluminium product exports in the short term, but would not substantially affect them in the future due to China's oversupply of aluminium and aluminium products.
"As China's aluminium product consumption is far less than industrial capacity, exports are necessary for domestic market balance. Both domestic and international aluminium prices are bound to increase to some extent in the period after the policy is released," Liu said.
Liu commented that there were still profits to be made from aluminium product exports, despite lower tax rebates. "As primary aluminium exports are currently taxed at 15%, a substantial amount of aluminium capacity has switched focus to processed aluminium in order to generate higher profits," he explained.
China exported 196,710 tonnes of aluminium products in April, up 28.6% from the previous month. Exports surged 95.6% to 605,522 tonnes in the first four months of the year, according to statistics released by the General Customs Administration last Tuesday.
The noticeable growth of aluminium product exports is a result of a significant increase in aluminium product capacity, after the primary aluminium export tax was increased from 5% to 15% on Nov. 1, 2006.
In addition, a total of 83 types of steel products including wire, hot-rolled plate and steel section will be levied between 5% and 10%. This move follows the cancellation of export tax rebates for those 83 types of steel products on April 15 this year.
The export tax on billets, steel ingots and pig iron will be increased from a current 10% to 15% on June 1. The export tax on the ores of nickel, chromium, tungsten, manganese, molybdenum and rare earth will also be increased from a current 10% to 15%.
Coal tar, various ferroalloy products, unwrought zinc and calcium fluoride export taxes will also be increased from a current level of between 5% and 10% to between 10% and 15%.
Furthermore, the export of rare earth metals, refined lead, terbium oxide, dysprosium oxide as well as nonferrous scrap metal will be levied at 10% from June 1.
Ammonium parastungstate (APT), molybdenum oxide, ammonium molybdate, sodium molybdate, magnesite and burned magnesium export taxes will range from 5% to 15% as of June 1.