Sources say that Chinese exporters will increase prices and renegotiate after the tax rebates are cut.

Analysts and traders said that Chinese exporters will increase prices on a variety of products, from used cooking oil to aluminium, and renegotiate their contracts to pass the cost of Beijing’s tax incentives.

On Friday, the world's second-largest economy announced that it would reduce its export tax rebate rates for certain refined oil products, solar panels, batteries, and non-metallic minerals from 13% down to 9%.

It also said that it would cancel the rebates for products made of aluminium, copper, and fatty acids and oils derived from animals, plants, or microorganisms which have been chemically altered, including used cooking fat (UCO).

Analysts and company officials have said that metal exporters might rush to export before the deadline of December, while UCO exporters will likely delay shipments in order to renegotiate their contracts.

Ye Bin, Chairman of Chinese UCO Exporter Sichuan Jinshang said that the new policy could cause exports to be cancelled or delayed for December-loading UCO. Parties will try to renegotiate their contracts.

On Friday, Beijing's announcement pushed up the price of aluminium on the London Metal Exchange as well as U.S. Soyoil on fears that Chinese exports abroad may be curtailed. Prices have since cooled down on Monday.

China is a leading aluminium producer in the world and exports a lot of semi-finished aluminum used for everything from packaging to transportation.

In a Saturday note, analysts from Shanghai Metals Market (SMM), a consultancy, said that the cancellation of tax relief for aluminium products would increase costs and reduce exporters' interest in shipping goods abroad.

The tax changes will affect almost all of the products made from aluminium exported by China. SMM reported that from January to September of this year China exported 4,62 million metric tonnes of the types of aluminium products which will be affected.

Western countries have accused China of unfairly subventioning its aluminium, steel and other sectors. They claim that the excess capacity in China is flooding global markets.

A Singapore-based aluminium dealer said that the overseas market would still require Chinese cargoes to fill in a gap, even if they were at a higher price.

The trader, who requested anonymity because he was not authorized to speak with the media, said that "domestic prices could fall another 2% to 3%" to offset the loss suffered by aluminium exporters.

Citi analysts believe that the tax changes will have a less significant impact on copper products, as the export volumes, which are about 800,000 tons per year, are lower. Some of these products are also made using tolling services, so they would not be affected.

Zhao Yongcheng is the principal analyst of Benchmark Minerals Intelligence. He said Beijing made this move to increase domestic supply and encourage producers to use copper ore imported from abroad to produce higher-valued goods.

Zhao stated that the previous tax incentives had encouraged the export of copper products with low value added, which "was equivalent to wasting valuable imported resource", Zhao. China is one of the biggest importers of copper ore.

Zhao said that the move would "definitely accelerate the integration of the copper fabricators by eliminating some from the market."

SOLAR AND FUEL

China is grappling with an excess of refining capacity, as well as a lacklustre domestic demand.

A state oil official stated that the margins for exporting refined fuel would be reduced by 200-300 Yuan ($27.62 to $41.43) per ton.

Citi analyst Oscar Yee stated in a recent note that this tax change would reduce revenue for the state refiners Sinopec, and PetroChina. It should also cap fuel exports to China in order to support refiners in other parts of Asia.

Export margins were weak in October, causing China's refined product exports to fall to their lowest level in 18 months.

Bi Xinxin is a managing director at the energy consultancy Wood Mackenzie. She expects Chinese oil companies to continue exporting if their margins are healthy, and if they possess sufficient export quotas over time.

Citi analyst Pierre Lau wrote in a report that the downward tax adjustment for the solar industry, which is suffering from overcapacity could result in an increase of 0.02-0.03 Yuan per watt in the price of solar modules for overseas buyers.

Lau stated that Chinese solar panels would still be competitive despite the increase in price, as the costs would be passed to the end users overseas.

He said that this will have a limited impact on the earnings for Chinese solar equipment manufacturers such as Longi Green Energy.

(source: Reuters)