China abolishes tax incentives for metal exports: what does this mean for the market

China's abolition of export tax incentives has forced the aluminum industry to assess the impact on supply flows, with Chinese companies experiencing a sharp drop in shares while their international competitors showed growth, Bloomberg reports, UNN writes.

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Beijing unveiled a major overhaul of its export rebate regime late Friday night, announcing plans to eliminate a 13% tax rebate on overseas sales of aluminum, copper, and cut exemptions for batteries and solar panels.

Aluminum Corp. of China Ltd. and China Hongqiao Group Ltd., the country's two largest aluminum smelters, posted 5% drops in Shanghai and Hong Kong before losses were reversed, while Yunnan Aluminum Co. hit a 10% drop for the day in Shenzhen. Aluminum fell on the London Metal Exchange, losing 5.3% of the growth seen on Friday.

This move by Beijing, which some analysts see as an attempt to reduce China's industrial overcapacity, has had the biggest impact on aluminum among the affected commodities due to the importance of Chinese exports to both the country's producers and global buyers. The tax changes will come into effect on December 1.

The tax adjustment precedes the return of US President-elect Donald Trump to the White House with a promise to raise tariffs to protect American industry. It was also introduced as Chinese President Xi Jinping met with US President Joe Biden in Peru, emphasizing China's desire for cooperation between the world's two leading economies.

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"This could be a strategic move that demonstrates China's crucial role in global markets and its ability to influence prices and demand," ING commodities strategists Ava Manti and Warren Patterson wrote in an email. - "In the short term, the removal of the discounts will make Chinese aluminum more expensive on the international market and could lead to a reduction in exports.

Aluminum on the LME fell 1.6% to $2608.50 per tonne as of 10:03 a.m. local time.

The reaction of the copper market has been less pronounced so far, as China's copper products are not as important to the rest of the world as aluminum supplies. However, there has been a surge in overseas sales of copper products this year.

Zhejiang Hailiang Co., a major producer of copper pipes and rods, said the impact would be limited and the company would respond by accelerating overseas investment in countries such as Vietnam, Germany, the United States, and Morocco.

For solar producers, the long-term impact of the reduction in rebates is likely to be negligible. China dominates global production, so exporters should be able to pass on costs to foreign buyers. This increase will be more than offset by a 30% drop in panel prices over the past year, the publication writes.