China tax cut on nickel unlikely to spur imports

A tax reduction on imports of refined nickel in China is unlikely to spur inflow because of high world prices, trading sources said on Thursday.

China will halve in January the tax on imports of refined nickel to 1 per cent from 2 per cent, the finance ministry said on its website. The move reflects a need for imports to support a mushrooming economy in China, which consumes more than 10 per cent of the world's nickel, a metal used for stainless steel production and in the plating industry.

"I don't think the one percentage decline will impact much on China's imports. The trade volume of the metal does depend on spot demand in the country," said a Shanghai-based trader at an international trading house.

World nickel prices hit a record high of $34,950 a tonne on Dec 15.
The metal traded at $33,550 a tonne on Thursday, having more than doubled in price this year. Higher world prices have reduced Chinese demand for imported nickel as some small and medium-scaled stainless steel mills and plating factories reduce production of nickel-base products.

"You just look at our sales, which have halved from 2005," a manager at a trading firm in China's northern Inner Mongolia region said of reduced Chinese demand for imported nickel. The trading firm prefered not to keep any stocks of refined nickel for spot sales, he said.

It kept more than 120 tonnes of refined nickel in stocks for spot sales in previous two years. Costs of importing refined nickel were more than 320,000 yuan ($40,952) a tonne versus sales prices at about 315,000 yuan in Shanghai on Thursday, traders estimated.

But China still imported 7.6 per cent more refined nickel to 86,908 tonnes in the first 11 months this year as it does not produce enough for its consumption.

"The government wants to encourage imports. The price of nickel is high and really has hurt trade," a trader at a Shanghai-based firm said.

Traders said Beijing this year had already given a preferential tax of 1 per cent to many importers on refined nickel to encourage inflow.

Overseas suppliers were offering Russian metal at premiums of $300 to $400 a tonne over cash prices of the London Metal Exchange nickel for delivery in 2007 to Chinese ports, against $250 to $350 this year, traders said. Chinese buyers were seeking premiums below $300.

Beijing also would introduce a 5 per cent tax on exports of tungsten and ammonium paratung state, and a 15 per cent tax on export of indium, scrap indium and indium powder, the ministry said on its website.

A new 15 per cent tax on exports of unwrought molybdenum, scrap molybdenum and molybdenum powder would take effect in January, the ministry said.

China is the world's top supplier of tungsten and molybdenum, both used to strengthen steel. Higher taxes could raise price requirements from Chinese exporters and that may drive up world prices.

"We are watching the market and then will decide what to do," said an official at Jinduicheng Molybdenum Mining Corp, the country's top producer of the metal. Industry officials had also expected Beijing to introduce a 5 per cent tax on exports of aluminium billet in 2007 but the alloy was not included on the latest list. The export tax for antimony would be left unchanged at 5.0 per cent, the ministry said.

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