China May Cancel VAT Export Rebate and Levy Export Tax on Zinc

The Chinese government is considering cancelling the current 5% value-added tax (VAT) export rebate and imposing a minimum 5% export tax on 0# refined zinc (>=99.995%) in January next year, in order to slow investment growth in zinc smelting projects and curb the country's huge trade surplus, industry insiders told Interfax today.

"The policy is still being discussed by relevant government departments and major smelters. However, as smelters, we hope the existing policy can be retained," a senior official, surnamed Wang, from the trading department of Hunan Zhuzhou Smelter Group, China's leading zinc smelter, said. 

Wang expressed concern that the policy may burden domestic zinc smelters with unprecedented difficulties. "The domestic zinc smelting sector will face the same problems as the lead smelting sector is currently facing," he added. 

The policy will result in a significant drop in China's zinc exports and tight global supply, which will in turn dramatically increase both global zinc prices and zinc concentrate prices. Domestic zinc smelters will have no choice but to accept soaring imported concentrate prices, and will probably be forced to reduce production, Wang explained.   

Zhu Yiman, an analyst from Commodity Business Intelligence China, a Shanghai-based commodity market service provider told Interfax that "it is only a matter of time before the government cancels the VAT export rebate on 0# zinc, as other types of refined zinc, namely 1# zinc (>=99.99% but <99.995%) and 2# zinc (<99.99%), have already been levied with a 5% and 10% export tax respectively." 

Zhu further commented that major smelters met with government departments last Friday to discuss policy feasibility, but no details have been released to date.   

0# zinc is the standard form of zinc on both the London Metal Exchange and the Shanghai Futures Exchange, and accounts for the majority of China's zinc exports.  

China imported 104,729 tonnes of zinc in the first nine months of this year, slumping 56.1% from the same period last year, while exports climbed 43.7% to 248,233 tonnes. As a result, net exports reached 143,504 tonnes. Exports in September tumbled by 44.03% from August to 12,325 tonnes, down 18.5% from the same period last year.  

The country produced 2.696 million tonnes of refined zinc in the first nine months, up 19% year-on-year, creating ample supply that has dragged zinc futures to record lows since their debut on the Shanghai Futures Exchange in March this year.   

Zinc for immediate delivery at the benchmark Shanghai Yangtze River Market traded at an average of RMB 22,500 ($3,036.44) per tonne today, down RMB 200 ($26.99) from last Friday.  

"Zinc futures in both China and the West have to face the problem of a zinc production surplus as well as rising stockpiles in recent weeks. The domestic zinc spot price is also down," Deng Hong, with China Brilliant Futures, said.