China to end export tax rebates on aluminum, copper, biofuel feedstock Dec. 1

China has announced sweeping changes to its export tax rebates for key commodities, including aluminum, copper and oil products, effective Dec. 1, sending shockwaves through markets on fears of reduced trade flows.

In a statement Nov. 15, China's finance ministry said that from next month, it will end tax relief for exports of products spanning aluminum, copper and biofuel feedstocks, which previously benefited from a 13% rebate on export duties.

Reduced rebates will be applicable to some refined oil products, photovoltaics, batteries and non-metallic mineral products, with rates to be cut from 13% to 9%, the statement said.

Aluminum prices rose 8.5% on the London Metal Exchange as markets assessed the impact of reduced flows from the world's largest producer, while European biofuels producers fretted over limited waste feedstock supplies being drawn into the crossfire of renewed trade wars.

First introduced in the 1980s, export tax rebates have kept Chinese import prices low for its trade partners and propelled the country's economic growth, but signs of a more protectionist approach from its counterparts appear to have shifted its policy stance. Since Donald Trump secured a US election victory, China has announced a package of support measures for local governments and promised more sweeping fiscal stimulus in 2025.

Nick Trickett, senior metals analyst at S&P Global Commodity Insights, called the measures a "conscious effort" by China to reduce the scale of its trade surplus ahead of any formal measures from the US but warned that macroeconomic headwinds will challenge ambitions to direct more supplies domestically.

"Deflation at home is the larger challenge for policymakers in Beijing and the current stimulus approach, while large in financial terms, is not fundamentally changing consumer sentiment or headwinds," he said.

In an industry note Nov. 15, ING Commodities Strategist Ewa Manthey and Senior Economist Inga Fechner said the decision could be a "strategic power move" to demonstrate China's influence on global markets to improve its bargaining position ahead of sweeping tariffs expected under the Trump administration.

Metals exposure

A higher tax burden on China's metal exports poses a substantial upside to global aluminum markets after a period of record output that has grown its market share.

According to ING, China produced about half the world's aluminum in 2023, while few countries are in a position to increase their production to replace reduced exports. The bank said the global aluminum market is expected to return to a deficit from 2026 and warned of ripple effects for the automotive, construction and packaging industries amid higher costs.

Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, said that the policy decision could compound inflationary pressure on aluminum markets on the back of an existing run in 2024, which has already lifted prices despite robust exports from China.

China's exports of semi-finished and finished aluminum products are expected to reach 6.2 million mt and 3.3 million mt respectively in 2024, rising 18.1% and 16.2% year on year, according to data from China's state-run research agency Antaike.

Exports of unwrought copper and copper products surged in the first nine months of 2024, rising 38% year on year to 1.03 million mt, Chinese customs data showed.

"We know it is going to be tougher between Donald Trump and China and we know that China wants to move sophisticated manufacturing more and more to China," said Schieldrop, who remained upbeat on China's growth prospects after recent monetary policy and fiscal stimulus measures.

"China will recover, and the Chinese government does not want to empty inventories of copper, aluminum, nickel, zinc and oil products in the downturn and then get into a squeeze in the next upturn," he said.

Biofuels response

China's export-focused biofuels market also reacted strongly to the news that outflows of used cooking oil feedstock will no longer qualify for 13% rebates, compelling producers both domestically and internationally to adjust their strategies.

"Some factories in China are taking advantage of the export tax rebate, while foreign factories also benefit from it," a Chinese trader said, explaining that the tax rebate has been baked into profit margins for local producers.

Europe recently cracked down on finished biodiesel imports from China by imposing antidumping tariffs in August but remains dependent on imports of waste used cooking oil as feedstock for its domestic industry.

According to lobby group Transport & Environment, Europe currently imports more than 80% of its UCO, with China alone accounting for 60% of the volume.

European UCO buyers said that feedstock prices have shot up on fears of shortages. "People are freaking out, offers are immediately skyrocketing by at least $100/mt," said a market source, while another warned of squeezed margins for producers.

Platts, part of S&P Global Commodity Insights, assessed UCO North Asia at $905/mt on Nov. 15, rising 10% month on month and hovering at a 13-month high.