Singapore — China's molybdenum producers are unlikely to immediately flock back to the export market next month following the roll-out of a new tax regime on May 1, as domestic prices are still higher than international levels, market sources said Wednesday.
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China Premier Li Keqiang said at an internal State Council members' meeting on Tuesday that the central government will abolish the various taxes -- including resource tax on rare earth, tungsten and moly mining operations in China -- replacing them with a single tax based on sales prices, starting May 1.
He did not disclose the exact amount or percentage of the new tax, but emphasized that the new tax will stick to the principal of "not imposing a heavier burden on such mining operations."
Chinese market sources could not give an exact breakdown of taxes under the current regime due to their complexity. Sources have also not heard of any levels for the new tax rate, while a European source suggested the new tax would be set at 8.5%.
"Several numbers have been speculated in the market since last year, like 7%, 8%, 11%, or 12%, but all these are wild guesses, none from official sources," a market source noted.
Some Chinese market sources had also previously expected the government to replace export taxes with a higher "resource tax" -- a move which would, if it happens, keep moly exports curtailed.
"The new policy reassures us that we are not paying more for mining, so our production cost will probably remain largely the same prior to and post May 1," an official from a Chinese moly mining company said.
Li's statement came shortly after Beijing's April 23 notice announcing the removal of 5%-20% taxes levied on exports of various moly products from May 1, which would in theory, pave the way for more exports from China.
"Overseas market does not need to worry about the immediate flooding of Chinese moly products into the global market after May 1 at all, as China's domestic prices, for now, are still higher than overseas," a trader in south China said.
China's moly oxide prices are equivalent to about $8.30-$8.40/lb and ferromoly at about $20.20-$20.30/kg. In comparison, Platts assessed moly oxide dealer at $7.70-$7.80/lb and 65% European ferromoly price assessment at $19.40-$19.70/kg Tuesday.
Adding to this, a Chinese trader noted that production costs for domestic producers are higher than that for international miners.
"[This could] leave no margin for Chinese traders to maneuver," he said, noting that global ferromoly prices prior to 2007 could have been $10/kg higher than domestic prices, which would have enabled Chinese traders to be more flexible with prices.
China had been the world's largest ferromoly producer and export until 2007. The country has to remove export barriers -- including export quotas and taxes on rare earth, moly and tungsten -- by May 2 to comply with the World Trade Organization's ruling against these measures made last August.
--Hongmei Li, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com