Spot copper premiums surge on China’s impending VAT cuts

SHANGHAI, Apr 19 (SMM) – As the SHFE 1805 contract began delivery this week, spot copper prices rose sharply due to arbitrage created by China’s tax cuts, SMM believed.

Cargo holders refrained from selling and were keen to offer high. They also delayed delivery until May, to take advantage of the tax cut. In south China, spot premiums climbed up to 450 yuan/mt as of Wednesday April 18 as current inventories there declined to 16,000 mt from a high of 51,200 mt this year.

Effective from May 1, China’s value-added tax (VAT) will be lowered to 16%, from the current 17%. VAT for the transportation, construction, telecommunication and agricultural sectors will dip to 10% from 11%.

SMM expects spot premiums to remain at high levels in the short term with limited upward room. Market participants should also monitor prices of a cargo sell-off after the tax cuts take effect in May.

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