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China unlikely to cut 15% export tax on primary aluminum: sources


China is unlikely to cut a 15% export tax on primary aluminum despite a request by state-owned producer Chalco, Chinese and western smelter, trader and analyst sources said.

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Such a move would go against the government's long-standing campaign to conserve energy, rein in gas emissions, and cultivate the production and export of value-added products, the sources said.

Aluminum smelting is power intensive and adds little value, and the export tax is meant to curb the flow of ingots offshore.

As China does not have surplus power generating capacity, a reversal of the policy would be akin to exporting electricity and importing pollution, analyst and smelter sources said.

Two Chinese smelter sources said authorities were more likely to consider measures to incentivize the production and/or the export of secondary or processed aluminum products, such as alloys, coils, cables, plates and rods.

A large number of these products enjoy VAT rebates when exported.

Some sources said they would not rule out new rebate increases for this category of products.

However, a metals analyst said aluminum sheets for automotive applications were a compelling form of value-added production in the aluminum chain, but coils, cables and rods were hardly advanced or niche products.

China should ideally work towards developing advanced, proprietary fabricated aluminum products, he said.

A western producer said he would regard coils, cables, rods and alloys as having legitimate value-added status.

A source close to Chalco said it was keen to export primary aluminum priced off the LME plus premiums, which would fetch a better return than domestic aluminum prices on the Shanghai Futures Exchange.

But, Chinese smelters are not able to make a decent margin on the arbitrage due to the export tax, the source said.

The source also said Chalco's appeal was meant to be a longer-term objective, and there was no expectation of it being granted for the 2015 fiscal year.

According to a recent Ministry of Industry and Information Technology report, China is scheduled to shutter 25,800 mt/year of outdated aluminum ingot smelting capacity by the end of 2014, bringing the year's mothballed capacity to about 500,000 mt/year.

The shutdowns are in line with the government's goal of accelerating industrial upgrade by scrapping energy-inefficient manufacturing facilities.

In the past decade, China has slashed the number of aluminum producers to 64 from more than 120, according a report last month from the Henan Provincial Nonferrous Metals Guild.

But, in the larger scheme of things, China's ingot-smelting capacity continues to swell, with overcapacity and poor margins being enduring problem.

--Joanna Lim,
--Sui Ling Phang,
--Alvin Yee,
--Edited by Dan Lalor,