The Hindu Business Line : China’s new trade norms may not hit copper demand

New measures
Importers will have to deposit half of their payable levies (including import duty and VAT) at the customs while importing raw materials.
Metal fabricators can import refined metal duty-free if it is for processing into semi-finished products.

G. Chandrashekhar Mumbai, Aug. 1

China’s Ministry of Finance has announced new measures tolimit export of processed goods, discourage investment in low-value-added products and ease the trade surplus.

This announcement is expected to have a significant effect on Chinese metal imports in the coming months. It will try to limit exports on more processed goods in the second half of 2007.

Over 1,800 types of commodities including copper, lead, zinc and cloth, are added to the category.

Importers will have to deposit half of their payable levies (including import duty and VAT) at the customs when they import raw materials, a research report stated adding that the deposit will be remunerated following the re-exports of the finished products within three months.

The new deposit system will be effective from August 23, although existing export contracts will continue until October 23.

Under the tolling agreements, metal fabricators can import the refined metal duty-free if it is for processing into semi-finished products including rod, bar and profile for re-exports. Otherwise, these imports are subject to 2-3 per cent (2 per cent for copper and 3 per cent for lead and zinc) import tariff and 17 per cent VAT.

The announcement, it is widely expected, will have an effect especially on copper. Some are expecting a jump in refined copper imports in July and August because fabricators may rush to export their finished products before the imposition of the deposit system effective in October this year.

In its latest report, Macquarie Research proposed a different view of the effect of the policy on the Chinese copper industry. “We believe, the influence on Chinese copper imports will be minimal in the second half of this year, and will only marginally affect copper fabricators profit margin — that is, modest rise in finance costs — rather than hurt the momentum of Chinese copper processing trade.”

The processing trade is most likely determined by the SHFE/LME arbitrage ratio rather than the introduction of a deposit system, Macquarie pointed out.

According to government statistics, during January-June 2007, Chinese copper imports accounted for 33 per cent of total imports of 895,000 tonnes.

In 2006, 440,000 tonnes of copper were bought under the tolling agreement, accounting for 53 per cent of total imports.

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