Dec. 8 (Bloomberg) -- Copper trading volumes on the Shanghai Futures Exchange, headed for the first decline in four years, may recover now that commodities held in bonded warehouses are allowed to be delivered against futures positions, said Jia Zheng, a trader at Soochow Futures Co.
"It’s a way to increase trading volumes and make it a little cheaper for trading companies to do business,” said Jia from Shanghai. Still, “as long as the material leaves the warehouse, the value-added tax will still have to be paid.”
Copper in London soared to a record $9,044 a metric ton yesterday. Rising prices and increased margins have driven volumes down almost 40 percent this year in Shanghai. China will waive a 17 percent value-added tax on commodities used for delivery against exchange contracts within the bonded area in Shanghai, the Ministry of Finance said yesterday.
"The new rule may attract more investment in the futures market, but the likely beneficiaries are trading companies,” Wang Zhouyi, deputy manager of research at China International Futures (Shanghai), said. “Producers and end-users need the physical goods so they will have to pay the tax at some point.”
The tax waiver is part of a trial plan to make Shanghai an international financial and shipping hub, the Ministry of Finance said. The waiver went into effect on Dec. 1, the statement said.
Importers previously had to pay the tax on goods before delivering against futures contracts, according to Wang Fei, an analyst at Haitong Futures Co.
Inventories of copper in Shanghai bonded warehouses were more than 300,000 metric tons last month, nearly three times the amount in Shanghai Futures Exchange warehouses, according to traders and analysts. The so-called unreported stockpiles have increased as rising prices discouraged purchases by Chinese users, the world’s largest.
Copper for three-month delivery on the London Metal Exchange has climbed 18 percent this year on expectations of increased demand in China. Futures fell as much as 2 percent to $8,705.50 a ton today and traded at $8,712.25 a ton by 3:08 p.m. Singapore time.
Trading volumes for copper in Shanghai have slipped 39 percent in the first 11 months, according to exchange data, and are set for the first yearly drop since 2006. The exchanges trades copper, aluminum, zinc, steel-reinforcing bars, steel wire rods, gold, fuel oil and rubber.
"Higher prices also deterred investors as smaller players can’t make the margin,” said Li Ye, an analyst at Minmetals Starfutures Co. The Shanghai bourse increased margins for copper to 10 percent last month. Futures reached 70,150 yuan ($10,530) a ton on Nov. 11, the highest level since March 2008.