UPDATE 2-China to cut some grain, metal, steel export taxes

Published: 22 Jun 2009 04:22:55 PST

* Wheat, rice, soybean export taxes scrapped

* Sulphuric acid export tax scrapped

* Indium, molybdenum export tax down to 5 pct from 15 pct

* Tax on some steel and tungsten products halved to 5 pct

* No change to aluminium, disappointing smelters

(Adds trader comment, soymeal tax scrapped, web link)

BEIJING/HONG KONG, June 22 - China will scrap or cut export taxes on a range of grains, metals and other materials from July 1, helping domestic producers to ease the oversupply that has built up in many commodities in the last year.

The list of export goods that will be affected includes wheat, rice and soybeans, some steel products, fertiliser and sulphuric acid -- the latter a boon to ailing copper smelters that have high inventories of the chemical, a by-product of copper production.

It said that effective from July 1, export taxes for indium and molybdenum would be cut to 5 percent from 15 percent and the 5 percent export tax on sulphuric acid would be scrapped. Taxes on some steel products and certain tungsten products will also be cut to 5 percent from 10 percent.

Export tax on soymeal, previously 10 percent, will be scrapped.

The document was posted on the Ministry of Finance website on Monday. To see the list in Chinese, click on http://gss.mof.gov.cn/guanshuisi/zhengwuxinxi/zhengcefabu/200906/P020090622589468052146.xls

China is the world's top producer of minor metals indium, molybdenum and tungsten. Indium is used in the production of liquid crystal display television screens, while molybdenum is used in specialised steels and tungsten has a wide range of applications including light bulbs and military products.

"They are trying to make their material more competitive," said one European minor metals trader. He said the immediate impact on international prices would be limited, however, especially as the tax cut had yet to be implemented.

NO ALUMINIUM

There was no place on the list for aluminium, disappointing smelters that had lobbied Beijing to cancel or reduce the 15 percent tax on exports of primary aluminium as domestic stocks rose and consumption remained lukewarm.

Beijing's policy of restricting exports of energy-intensive products, including primary aluminium, may have left the metal outside the latest list.

To reduce China's 500,000-tonne stockpile of primary aluminium, which has grown 25 percent in a month, smelters have been lobbying the government to resume a 5 percent tax on imports of the metal. But analysts say Beijing is unlikely to do so soon due to the political risk of being seen as protectionist.

China scrapped the export tax on corn late last year and it has been ratcheting up value-added tax rebates applicable to the export of thousands of products, rapidly lowering export barriers for products ranging from cotton garments to televisions.

Last month's rebate increases included those on corn starch and ethanol, as Beijing sought to help the food processing industry.

After five years of large harvests, much of which has been salted away in state reserves, Chinese officials are casting around for ways to persuade farmers to keep sowing and reaping, while a sluggish market has taken a heavy toll on farm incomes.

The latest move scraps the export tax on soy, rice and wheat from 3 percent. China is already the world's top importer of soy and a net exporter of rice. This year it has been a net importer of wheat, reversing a solid export position seen in 2007 and early 2008. China suspended wheat exports during much of 2008.

Analysts said the latest move was unlikely to spur exports of China's wheat or wheat flour as Beijing has kept domestic prices higher than international prices to aid farmers.

"China has no advantage in wheat exports. Prices are not competitive," said Ma Wenfeng, an analyst with Beijing Agribusiness Consult Ltd.

Attracted by lower international prices, Chinese flour mills have been importing wheat since late last year.

"There is no more price advantage: two to three weeks ago international prices were higher than domestic prices, but now the two are about the same," said Ma. (Additional reporting by Michael Taylor in London)