On November 17, Financial Associated Press reported (by journalist Liang Xiangcai) that the market reacted quickly to the proposed cancellation of export tax rebates for aluminum and copper materials, particularly with aluminum prices exhibiting a clear "strong externally and weak internally" trend.

Wen Xianjun, former vice president of the China Nonferrous Metals Industry Association and honorary president of the Shandong Aluminum Association, stated in an interview with Financial Associated Press that cancelling export tax rebates increases export costs, which, with a decrease in export volume, may intensify domestic competition; overseas opportunities will increase, pushing enterprises to expand abroad; in addition, it may impact domestic primary aluminum consumption, and with the continuous increase in recycled aluminum production, the domestic supply of primary aluminum will become more saturated.

Against the backdrop of capacity saturation and low gross margin in the domestic nonferrous metal fabrication industry, leading manufacturers represented by Ningbo Jintian Copper(Group) (601609.SH), Zhejiang Hailiang (002203.SZ), and Shandong Nanshan Aluminium (600219.SH) are changing paths and accelerating their overseas expansion.

Interviews conducted by Financial Associated Press have revealed that the proposed export tax rebate policy may place short-term pressure on the aluminum and copper processing industries, but in the long term, it will promote the industry to shift toward high value-added products and accelerate the overseas expansion of related enterprises.

Cancellation of export tax rebates for aluminum and copper materials: aluminum prices show "strong externally and weak internally".

The Ministry of Finance and the State Administration of Taxation announced on November 15 that starting from December 1, 2024, export tax rebates for aluminum materials, copper materials, as well as chemically modified plant and animal or microbial oils and fats will be cancelled. The export tax rebate rate for some refined oil products, photovoltaics, batteries, and some non-metal mineral products will be reduced from 13% to 9%.

As soon as this news was released, the futures market reacted on the same evening. Regarding aluminum prices, the domestic and international markets showed mixed results, with LME aluminum futures accelerating to rise up to 7.8% at one point, while Shanghai aluminum futures reversed downward after opening, at one point showing a drop of over 2%; for copper prices, Shanghai copper futures opened high then fell, while LME copper futures briefly rose before retreating during the period.

Li Kui, a nonferrous metals researcher from Huarong Rongda Futures, told a reporter from the Financial Association that according to the aluminum ingot price of 20,850 yuan/ton on November 15, the average export profit of aluminum products in China is 2,160 yuan/ton; and the profit also includes a 13% export tax rebate, amounting to 2,858 yuan/ton. This indicates that if the tax rebate is canceled, there may be losses in the export of aluminum products based on the current processing fees.

Specifically, regarding aluminum products, there are a total of 24 aluminum codes proposed for the cancellation of export tax rebates, which nearly cover the main aluminum sections, aluminum plates and foils, as well as aluminum rods in the domestic market; however, it does not involve high value-added aluminum products.

Institution data indicates that aluminum exports, as an important component of downstream consumption, have accounted for about 15% of total consumption in recent years, with China exporting 9.18 million tons of aluminum and its products in 2023 (excluding recycled aluminum), of which the export volume of aluminum products is the largest at 5.28 million tons, making up 57%.

In terms of copper products, the export proportion is relatively low. Institution data shows that in 2022, over 85% of end consumption was used domestically, with exports being less than 15%, among which copper end products account for about 12% and copper materials about 2%.

Leading enterprises are accelerating overseas expansion.

Taking Shandong Nanshan Aluminium as an example, in 2023, the company has already resold 0.336 million tons of electrolytic aluminum quotas from China, and on the basis of the existing 2 million tons of alumina project in Indonesia being fully operational, it continues to expand the alumina production capacity by 2 million tons, while planning to invest approximately 6.063 billion yuan to construct an annual production facility of 0.25 million tons of electrolytic aluminum and 0.26 million tons of carbon projects.

Henan Mingtai Al. Industrial (601677.SH) is a leading aluminum processing company in China, and in terms of exports, the revenue for 2023 is 7.011 billion yuan, accounting for 26.51%; the main profit is 0.562 billion yuan, accounting for 22.48%.

The company has long anticipated the impact of the export tax rebate on relevant aluminum profiles, and mentioned on the investor interaction platform at the end of August that currently, exports are subject to the exemption and refund policy; if there is no tax rebate for aluminum exports, the sales price will also fluctuate, which will have no significant impact on the company's performance.

In the context of higher gross margins for copper materials listed companies overseas, ningbo jintian copper(group) and zhejiang hailiang are accelerating their overseas layout.

Zhejiang hailiang is one of the largest copper tube and rod manufacturing enterprises in the global market. In May of this year, the company announced plans to invest 0.288 billion USD to build a new materials technology industrial park in Morocco; previously, in February 2023, zhejiang hailiang announced an investment of 5.9 billion yuan to build a high-performance electrolytic copper foil project with an annual output of 0.1 million tons in Indonesia.

In 2023, the sales distribution of zhejiang hailiang in domestic and overseas markets accounted for 38.90% and 25.41% respectively. Due to the higher gross margin from overseas business, the main profit from domestic and overseas sales remained roughly equal, at 42.92% and 41.69% respectively.

According to the investor relations activity record disclosed by ningbo jintian copper(group) recently, the overseas sales volume of the company's copper products in the first half of this year was 0.0866 million tons, a year-on-year increase of 22.84%. Financial data shows that in 2023, the company's overseas revenue accounted for 8.68%, with the gross margin being three times that of domestic sales, contributing about 23% to the main profit; whereas in 2020, the proportion of the company's overseas main profit was about 10%.

Regarding overseas investment, ningbo jintian copper(group) announced at the end of 2023 that, to promote business development and expand overseas production base layout, it plans to invest a total of 0.7 billion yuan to establish a subsidiary and build a production base in Thailand.

Currently, the profits within china's nonferrous metals industry are mainly concentrated in the upstream mining sector, while competition in the mid and downstream metal fabrication processes is intense.

On January 30, Chen Xuesen, vice president of the china nonferrous metals industry association, stated at a news conference that in 2023, the revenue profit margin for nonferrous metal smelting and processing is only 3.87%, with the profit margin for copper fabrication at 1.53% and aluminum fabrication at 2.8%, far below the levels of 5% for the overall manufacturing industry and 5.76% for industries above the scale, thus requiring extensive enterprises within the industry to exercise strict self-discipline in controlling new smelting and processing capacity, speed up the extension of the industry chain, enhance product added value, and actively change the economic growth mode of enterprises and the industry.

Regarding the impact of the proposed cancellation of export tax rebates on the copper and aluminum fabrication industry, several industry insiders told the financial news agency that in the short term, it will somewhat pressure the domestic downstream profiles market, but in the long run, it will compel enterprises to focus on technological innovation and target high value-added products.