Chinese exporters to hike prices, renegotiate contracts after tax rebate cuts, sources say
By Amy Lv, Chen Aizhu and Mei Mei Chu
BEIJING, Nov 18 (Reuters) -Chinese exporters of a wide range of products from aluminium goods to used cooking oil and solar power gear will raise prices and renegotiate contracts to pass on the cost of Beijing's tax incentive cuts, traders and analysts said.
The world's second largest economy said on Friday that, from Dec. 1, it will reduce the export tax rebate rate for some refined oil products, photovoltaics, batteries and certain non-metallic mineral products from 13% to 9%.
It said it will also cancel the rebate for aluminium and copper products and for chemically modified animal, plant or microbial oils and fats, including used cooking oil (UCO).
Metal exporters could rush through exports before the December deadline while UCO exporters may delay shipments to renegotiate contracts, analysts and company officials said.
"For December-loading UCO, export shipments could be delayed or cancelled due to the policy change as parties will seek to renegotiate contracts," Ye Bin, chairman of Chinese UCO exporter Sichuan Jinshang, told Reuters.
Beijing's announcement drove up aluminium prices CMAL3 on the London Metal Exchange and U.S. soyoil prices BOcv1 on Friday on concerns that it may curb Chinese shipments abroad, although prices have cooled off on Monday.
China is the world's biggest aluminium producer and a major exporter of semi-finished aluminium used in everything from transportation to packaging.
"The cancellation of tax rebate for aluminium products will lift costs of exporters, curbing their interest in shipping cargoes abroad," analysts at consultancy Shanghai Metals Market (SMM) said in a note on Saturday.
Almost all the aluminium products exported by China will be affected by the tax change. From January to September this year, China exported 4.62 million metric tons of the kinds of aluminium products that will be affected, SMM said.
Western countries have repeatedly accused China of unfairly subsidising its aluminium and steel sectors, saying the country's excess capacity is swamping global markets.
However, a Singapore-based aluminium trader said the overseas market will still need Chinese cargoes, even at a higher cost, to fill a supply gap.
"Domestic prices may fall another 2%-3% to offset the loss for aluminium exporters," added the trader who asked not to be named as they are not authorised to speak to the media.
Citi analysts expect the tax change to have a smaller impact on copper products as export volumes are smaller, at about 800,000 metric tons a year, and some of the products are made under tolling services which would not be affected.
Zhao Yongcheng, principal analyst at Benchmark Minerals Intelligence (BMI), said Beijing's move was partly to ensure sufficient domestic copper supply, and to encourage producers to use imported copper ore to make higher-value-added goods.
The previous tax rebates had encouraged exports of low-value-added copper products, which was "equivalent to wasting valuable imported resources", Zhao said. China is a big importer of copper ore.
"It will definitely accelerate the integration of copper fabricators, eliminating some out of the market," Zhao added.
SOLAR AND FUEL
The reduction of tax rebates for fuel exports comes as China grapples with excess refining capacity as well as lacklustre and volatile domestic demand.
"This is going to hit (refined fuel) export margins," a state oil official said, estimating margins would fall by 200-300 yuan ($27.62-$41.43) per ton.
Citi analyst Oscar Yee said in a note that the tax change will reduce revenues for state refiners Sinopec 600028.SS and PetroChina, and should cap fuel exports from China which could support refiners' margins elsewhere in Asia.
In October, China's refined products exports fell to their lowest levels in 18 months amid weak export margins.
Bi Xinxin, a managing consultant at energy consultancy Wood Mackenzie, expects Chinese oil majors to continue exports if margins are healthy and if they have sufficient export quotas in the long run.
For the solar sector, which is struggling with overcapacity, the downward tax adjustment could result in a 0.02-0.03 yuan-per-watt increase in solar module prices for overseas buyers, Citi analyst Pierre Lau said in a note.
Chinese solar modules would remain competitive even with the price increase as the cost would be passed on to end-users overseas, Lau said.
That will mean limited impact on the earnings of Chinese solar equipment exporters such as Longi Green Energy, he said.
($1 = 7.2413 Chinese yuan renminbi)
Additional reporting by Colleen Howe in Beijing and Trixie Yap in Singapore; Writing by Mei Mei Chu; Editing by Florence Tan and Andrew Heavens
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
