[SMM Analysis] New tax rebate policy in China shocked the global copper and aluminium market

Fig 4: Major markets for aluminium semi exports from China

What are the consequences of this new tax rebate policy?

After the announcement took place on 15th November 2024, copper and aluminium prices at LME and SHFE markets went in different directions. The higher LME prices could offset some of the loss from the tax rebate cancellation, if Chinese semi exporters use LME prices as their benchmark prices. The potential aluminium semi supply shortage in the rest of world could support the LME prices in the future.

At the same time, Chinese semi producers will have to increase their processing fees for semi clients in the rest of the world due to current low profit margins which cannot offset the loss from the tax rebate. We believe oversea buyers cannot find enough semi suppliers from other counties meet their demand. Both sides will need to negotiate the new prices for their orders. Before the policy becomes effective on the 1^st of December, Chinese producers can attempt to ship their products to clients as many as they can. If vessels aren’t available, they are able to deliver all their products to bonded warehouses. In 2021, the Chinese authorities also removed the tax rebate from some galvanised plates and sheets, which resulted in the export decrease in 2022. However, we have seen the galvanised plate and sheet exports recover in 2023 and 2024 due to global demand. A similar situation could be seen in the copper and aluminium semi exports. The global demand is a more important factor for Chinese exports.

Currently the demand in the rest of world is stable, however, lots of uncertainties remain in the global market. We don’t expect huge investment to happen soon in the copper and aluminium semi capacities in the rest of world. In the long run, we may see some Chinese semi capacities to be relocated into other regions, like Southeast Asia or countries that have FTA with United States and European Union.

The cancellation of tax export rebate on copper semis and aluminium semis could reduce the investment enthusiasm in the domestic capacity. At the same time, it could lower the pressure from other countries regarding subsidies and increase the fiscal revenue for the Chinese government. As the geopolitical issues continue affecting the global trade flows, some countries over the next few months could implement new duty measures. These governments are preparing their ammunition for the upcoming trade war.