One Month After the Cancellation of Tax Rebates: How Are Aluminum Plate/Sheet, Strip and Foil Enterprises Responding? [SMM Analysis]

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SMM January 18, 2025:

On November 15, 2024, the Ministry of Finance issued the "Announcement on Adjusting Export Tax Rebate Policies." Aluminum plate/sheet and strip, and aluminum foil were included in the list of items for which tax rebates were canceled. Following the official release of the announcement, in the second half of November 2024, aluminum plate/sheet, strip and foil enterprises affected by the cancellation of tax rebates ramped up their export volumes. By mid-January 2025, one month after the cancellation of the export tax rebate policy was officially implemented, how have negotiations on processing fees between aluminum plate/sheet, strip and foil enterprises and overseas customers progressed? What are the prospects for future developments?

According to SMM statistics, since the implementation of the tax rebate cancellation on December 1, 2024, the operating rate of China's aluminum plate/sheet and strip, and aluminum foil industry has mostly ranged between 60%-70%, significantly lower compared to previous years. After the export rush in the second half of November 2024, short-term overseas downstream demand was met and replenished, leading to an inevitable decline in orders, which has been one of the main reasons for the poor operating rate performance in China's aluminum plate/sheet, strip and foil industry recently.

SMM has learned that after the tax rebate cancellation was implemented, aluminum plate/sheet, strip and foil enterprises initially considered passing the tax cost onto overseas customers. However, most enterprises are still in the negotiation phase. Feedback from enterprises indicates that the higher the product's added value, the more advantageous their position in negotiations.

For some aluminum plate/sheet, strip and foil products with higher added value, relevant enterprises believe that overseas market shares are relatively stable. Taking 3104 can body stock as an example, SMM statistics show that the national production in 2024 was approximately 1.62 million mt, with exports reaching around 1 million mt. The overseas market is unlikely to detach from Chinese market supply in the short term. However, some enterprises have reported that previous blind expansion by domestic producers has led to overcapacity, making it difficult to achieve strong unity. Each enterprise is concerned that peers may make concessions first, resulting in slow and stagnant negotiations. As a result, during the negotiation transition period, temporary prices are being used for settlement. On one hand, enterprises continue to accept overseas production orders, while on the other hand, they continue price negotiations.

Some enterprises have also reported that their products have lower added value, making their price negotiation capabilities relatively weak. Additionally, there is unutilized capacity for similar products in overseas markets. If processing fees are significantly increased, their limited price advantage will disappear, potentially forcing them to give up part of their market share. A few enterprises have stated that they may also bear relatively higher tax costs and reduce the extent of processing fee increases.

Nevertheless, as foreign customers gradually deplete their raw material inventories, they will inevitably need to finalize new long-term contract prices. According to SMM, some enterprises expect the new price equilibrium point to emerge around March. SMM will continue to monitor developments.

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