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Tax return removal to hit aluminium sector
By Su Bei (China Daily)
Updated: 2004-12-30 08:44
The central government's decision to scrap the tax rebate for exports of
energy-intensive aluminium will have a big impact on domestic industry, experts
said.
Niu Li, a senior economist with the State Information Centre, said
cancellation of the tax rebate would translate into a direct reduction in export
companies' profits.
"This will discourage exports, which will in turn have an impact on domestic
smelters," he said.
The Ministry of Finance announced on Tuesday that it would cancel rebates for
exports of aluminium and ferro-alloys from January 1 next year.
Before that, companies can receive an 8 per cent rebate of the value-added
tax on exports of aluminium and 8 to 13 per cent on ferro-alloys.
The government wants to reduce exports of aluminium and other metals, because
domestic demand is already very large, Niu said.
The increased capacity from the strong demand has lead to a strain on energy
and resources, he said.
The government also needs to protect its natural resources, he said.
China's existing alumina reserves, which stand at about 506 million tons, may
be unable to meet demand in coming decades.
But an official with the China Nonferrous Metal Industry Association claimed
that removal of the tax rebate was a further blow to the industry and exports,
because the government already announced it would impose a 5 per cent tax on
exports of aluminium from January 1.
Domestic producers and exporters would be put under "relatively big" pressure
next year, the official said.
It would also fuel price rises on the international market, he said.
Aluminium futures jumped to their highest level in nine and a half years
yesterday as the market braced for a shortage of Chinese metal next month.
Zhang Fang, an analyst with Beijing-based China Securities, said scrapping
the rebate would increase the cost of exports, which stands at about US$1,500
per ton.
"The cost of exports is expected to increase by about US$120 per ton from
January 1," she said. The international price for aluminum is now about US$1,600
per ton.
"Exporters will gradually turn their eyes to the domestic market," she said.
However, domestic demand will slow down, due to the central government's
macro control measures to cool investment.
"This will add pressure to the industry, which is already suffering from
overcapacity," she said.
China's aluminium production has grown at an average annual rate of 20 per
cent or 1 million tons each year since 2002.
Aluminium production reached 6.2 million tons during the first 11 months of
this year, an increase of 22 per cent from the same period of last year.
"Domestic smelters will be forced to reduce production," she said. "The
country's aluminium production is likely to increase by only 9 per cent next
year."
But Liu Qiang, an official with the Aluminium Corporation of China Limited,
the nation's biggest aluminium and alumina producer, said the end of the tax
rebate would not have an impact on her company's expansion plans for the future.
The company said earlier it would increase its alumina and aluminium
production capacity by 50 per cent and 130 per cent respectively by 2006.
The company's net profits stood at 3.55 billion yuan (US$427.7 million) in
2003, rising from 1.4 billion yuan (US$168 million) in 2002.
During the first half of this year, the company earned a net profit of 3.4
billion yuan (US$409 million).
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