On 15 November 2024, the Ministry of Finance of the People’s Republic of China announced that they will end export tax rebate for copper semi and aluminium semi exports from the 1st of December 2024. Currently, the 13% tax rebate is crucial for the profitability of Chinese copper and aluminium semi producers as their profit margins are very low under the severe market competition.
How big is the impact of the new tax rebate policy?
As current domestic demand remains weak, the new policy has left market participants from around the world surprised by the decision. However as far as SMM understands, the Chinese authorities have been considering this change since the beginning of 2024, when rumours first appeared in the market.
The new policy will affect the majority of copper and aluminium semi products, shown as the following Table 1.
Table 1: New tax rebate policy will affect major copper and aluminium semi products
In 2023, China exported total 677.3kt of copper semis and 5.28Mt of aluminium semis to the world. If the same policy was effective in 2023, 566.4kt copper semi exports and 5.2Mt aluminium semi exports could lose the tax rebate, accounting for 84% and 99.1% of the total exports, which valued at 5.31 billion USD and 17.98 billion USD in 2023 respectively. The Chinese government could reduce tax rebate spendings by around 0.61 billion USD for copper semi exports and 2.07 billion USD for aluminium semi exports, if this policy was effective in 2023.
Fig 1: Copper semi exports from China since 2020 and potential impact by the new tax rebate policy
Fig 2: Aluminium semi exports from China since 2020 and potential impact by the new tax rebate policy
Where were the semis exported to?
In 2023, China exported around 566.4kt of copper semi products that would have been affected by the new tax rebate policy, of which 76.0% of them was shipped to Asia. Over the first 9 months of 2024, this proportion increased to 77.5%. Following Asia, EU 27 is the second largest market for these copper semi products. Around 38.9kt and 32.6kt copper semi products were exported to EU 27 countries in 2023 and the first 9 months of this year, respectively.
Amongst copper semi products, the largest exported semi were copper tubes and pipes which accounted for 39% of copper semi exports in 2023 and 35% of copper semi exports in the first 9 months of 2024. Copper foil was the second largest exported semi.
Fig 3: Major markets for copper semi exports from China
China exported a total of 5.24 million tonnes of aluminium semi products in 2023 and 4.86 million tonnes of aluminium semi products in the first 9 months of 2024 that would have been affected by the new tax rebate policy. Asian buyers purchased 50.7% and 49.1% of total these exports in these two time periods respectively. The importers from North America and EU27 countries contributed 949.4kt and 276.7kt aluminium semi orders in 2023, accounting for 18.1% and 5.3% of the total exports in 2023 respectively.
As shown in the Fig.4, aluminium rolled products, including plate&sheet (HS code 7606) and foil (HS code 7607), are the major exported aluminium semis from China. These two semis account for 57% and 24% of total exports over the first 9 months of 2024. If the clients from the rest of the world want to replace Chinese suppliers with others, they will need find more than 4.0 million tonnes rolled products each year elsewhere.
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 1st 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.
