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China's Aluminum Exports Rebates Reflect Demand Worries
Jun 25,2010 09:00CST
industry news

HONG KONG, June 25 -- China has retained tax rebates on exports of aluminum products, despite scrapping them for some other metals, in a bid to avert further pain for an aluminum industry battling anti-dumping charges that have hurt exports.

Analysts and smelter sources say consumption worries in the world's biggest aluminum market have prompted China to leave unchanged the rebates ranging from 13 to 15 percent on aluminum product exports, while scrapping from July 15 onwards tax rebates of 5 percent on exports of semi-finished products made from five other base metals. The rebate, intended to encourage exports, is applied to China's local value-added tax of 17 percent.

"The exemption may mean that cancelling rebates on aluminum is expected to have much bigger impact than other metals," said Li Yang, analyst at state-backed research group Antaike.

"If the rebates were cancelled, exports could collapse and that would hit the aluminum industry heavily since domestic consumption is already under pressure now. The government may not change the rebates easily."

Anti-dumping accusations by some countries had already hit exports, added Li, saying he worried consumption of primary aluminum could suffer from Beijing's wider policy tightening measures for the rest of this year.

Exports to the United States, Canada and Australia have been falling following anti-dumping accusations, but shipments to Africa, South America and the Middle East have risen this year, said a manager at a manufacturer of aluminum semis in the southern province of Guangdong.

"Demand from Africa is very strong...profits are better than the sales to the U.S. market," he said, adding that aluminum profiles were the most popular type.

Exporters have made profits from aluminum products this year. "We understand that Beijing wants exports to be profitable. Now we are profitable," said the manager, who declined to be identified because of the internal information.

China's move on rebates implied that the government felt it made no sense to export products made of the five base metals of copper, lead, zinc, nickel and tin because the country is an importer of these metals, while it has an oversupply of aluminum, he said.


Antaike has estimated China's consumption of primary aluminum at 15.9 million tonnes this year, up from 13.8 million tonnes last year.

But an annual expected consumption rise of 15 percent may be a mission impossible if Beijing cancels the rebates.

"Not cancelling the rebates means the government does not limit exports of aluminum products," a smelter official said, adding China could use exports to help ease domestic oversupply.

China's annual exports of semi-finished aluminum products rose 98 percent to 830,000 tonnes in the first five months of the year, or more than 10 percent of total domestic output.

Strong export orders had driven up purchases this year of primary aluminum from medium-sized and large fabricators, an aluminum trader in Nanhai city in Guangdong, one of China's main aluminum consuming areas, said.

But domestic production of primary aluminum surged near 50 percent from a year before to 6.78 million tonnes in the same months, with May's output hitting an all-time monthly record of 1.42 million tonnes, riding expanded capacity.

Some 2 million tonnes of primary aluminum is now stored in warehouses, fabricating plants and smelters versus about 1.6 million in the middle of April, smelter sources and traders estimated. Of the stocks, more than 400,000 tonnes are in Nanhai versus 300,000 tonnes in mid-April.

"The estimated stocks (of 2 million tonnes) are not a surprise," Li at Antaike said, adding strong exports were important to reduce the stockpiles.

Many smelters had cut sale prices of the metal below 14,000 yuan ($2,055) a tonne in early June, swelling their stocks, smelter sources said.


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