Industrial metal export tax rebate cancelled! Long term internal and external price convergence is expected to support upstream profits, and the clearance of production capacity is expected to benefit

On November 15, 2024, the Ministry of Finance and the State Administration of Taxation issued a notice to adjust the export tax rebate policy. Cancel export tax rebates for aluminum, copper, and chemically modified animal, plant, or microbial oils, fats, and other products. The announcement will be implemented from December 1, 2024. Previously, most domestic aluminum and copper materials enjoyed a 13% export tax rebate policy.

According to Wind, the LME copper and aluminum prices for the day were -0.6%/+5.3%, and the SHFE copper and aluminum prices were+0.9%/+1.1%. The cancellation of export tax rebates this time involves 24 codes related to aluminum and 34 codes related to copper, covering almost all major aluminum products such as domestic aluminum profiles, aluminum strips and foils, aluminum bars and rods, as well as a large number of copper products. According to SMM, the total export volume of aluminum products involved in this project from January to September 2024 reached 4.62 million tons, accounting for 94% of the total export volume of unprocessed and rolled aluminum and aluminum materials in China. According to Mysteel, the total export volume of these 34 types of copper products from January to September 2024 reached 520000 tons, accounting for 50% of the total export volume of unprocessed copper and copper materials in China. According to SMM and Mysteel data, the total export volume of aluminum and copper products involved in the policy from January to September 2024 reached 4.62 million tons and 520000 tons, accounting for 13.8% and 4.7% of domestic aluminum and copper demand, respectively. The export increment of aluminum and copper reached 650000 tons and 290000 tons, accounting for 2.0% and 2.6% of domestic aluminum and copper demand, respectively. According to SMM calculations, as of November 13th, the export profit per ton of domestic aluminum foil/aluminum strip/aluminum profile/aluminum ingot is+385/+406/+233/-1080 yuan respectively. Under the fierce competition in domestic aluminum and copper processing and the pressure on export profits, CITIC Securities believes that the cancellation of tax refunds will inevitably cause pressure on domestic metal prices and processing fees.

According to Wind and Wood Mackenzie, in 2023, China's production of electrolytic aluminum and refined copper will account for approximately 59% and 44% of the world's total, while exports of aluminum and copper materials will account for approximately 19.6% and 8.5% of overseas demand. The cancellation of tax refunds will significantly intensify overseas supply pressure, driving up overseas metal prices and processing fees. Overseas resources and processing enterprises are expected to benefit significantly. The external aluminum prices have also reflected this trend. In the long run, CITIC Securities believes that due to the high dependence of overseas on China's aluminum and copper, the prices of aluminum and copper in foreign markets are expected to continue to rise, approaching or even exceeding China's level, thereby supporting the recovery of China's aluminum and copper export profits and providing support for China's supply and demand pattern and prices.

In addition, according to SMM, as of October 2024, the average operating rates of aluminum and copper enterprises in China were 63.8% and 64.6% respectively, indicating a significant overcapacity situation. The cancellation of tax refunds is expected to gradually clear low value-added and high cost production capacity in China's aluminum and copper processing industry, improve the supply-demand pattern, and provide significant long-term benefits to leading enterprises in the processing industry with high-end product production capacity and excellent cost control capabilities.

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