Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

Sunday, November 25, 2012

China's tax cut plan for iron-ore miners unlikely to slash imports

A proposed tax cut by China for its iron-ore miners could lead to lower prices of the raw material, but it is unlikely to reduce imports by the world's top buyer as it does little to improve the competitiveness of domestic producers.

China may also face strong opposition to the plan to drop the total tax rate for local iron-ore miners to 10% to 15% from 25% because of the potential revenue loss for local governments, industry officials and analysts say.

China is the world's biggest producer of the raw material, with an annual output of more than one-billion tons. But the low quality of its iron-ore means it relies heavily on imports.

It buys about two-thirds of globally traded iron-ore, with this year's imports of the steelmaking raw material expected to top last year's record 686-million tons.

The proposed tax cut will "not make one iota of difference" in China's iron-ore imports, said Rory MacDonald, an iron-ore broker at Freight Investor Services (FIS).

Other analysts agreed, saying the move to cut taxes would also not change China's status as one of the world's most expensive iron-ore producers.

"Given China's place at the top of the global cost curve, reducing cost support through lower taxes will only mean that prices fall, leaving the domestic producers in the same position as before the tax cuts," said Graeme Train, commodity analyst with Macquarie in Shanghai.

Production cost will be cut by $12 per ton at the top of the curve if the overall tax rate is chopped to 10%, Train said.

Chinese miners, whose margins have been squeezed by higher energy, labour and environmental costs, spend between $90 to $130 to produce a ton of iron-ore, compared to $30 $50 per ton for big producers in Australia and Brazil.

"It's just a retrospective nod by the government to lighten their load a bit after what's been a tough year and a half. I don't see them passing it on to pricing, they'll embrace it potentially to widen profit margins," FIS' MacDonald said.

MORE VULNERABLE TO PRICE VOLATILITIES

A forecast drop in global iron ore prices over the next three years as top overseas miners ramp up output while Beijing's steel output growth slows will also negate any benefit from China's planned tax cut.

Even with iron ore prices unlikely to return to record levels of near $200 per ton reached last year, the still big margins enjoyed by low-cost producers Vale, Rio Tinto and BHP Billiton mean they can go ahead with plans to boost output, although they are holding off on longer-term strategies.

"I don't think China can cut reliance on seaborne supplies priced off spot indices by growing its domestic iron ore industry. It only can really achieve a decrease in reliance on seaborne supplies by purchasing mining assets overseas and shipping the material back home," said FIS' MacDonald.

With thinner margins, Chinese miners are also more vulnerable to price volatilities than their overseas rivals. Some of them have been forced to shut in recent months when prices slumped to three-year lows below $87 a ton. Prices have since rebounded to around $120.

Still, with local governments already struggling with falling revenues on a slower economy, there are doubts on whether the tax cuts could be rolled out.

"There are various taxes and many parties are involved. It's still hard to predict which tax could be cut, which not," said an official from industry group China Iron and Steel Association who declined to be named as he was not authorised to speak to media.

"However, they may have to make compromises eventually if local mines are not able to maintain business."

Edited by: Reuters

Monday, November 5, 2012

Australia court to hear mine tax challenge in 2013

Australia's High Court agreed on Monday to hear a challenge against a tax on mining profits in early 2013, as the government stood by its revenue forecasts for the tax despite a drop in commodities prices due to slower growth in China.

Mining magnate Andrew Forrest and his Fortescue Metals Group are leading the High Court challenge against the 30% minerals resource rent tax (MRRT), which started on July 1 this year in the face of industry and political opposition.

Australia's third-largest iron ore miner believes the tax is unconstitutional as only state governments can impose royalties. The government has said it will strongly defend the tax, and was careful to ensure the tax was on mining profits and not On production.

In a directions hearing, High Court Chief Justice Robert French referred the issue to the court's full bench, with hearings expected to start in March, 2013.

The tax on iron ore and coal profits was designed by the government and global miners BHP Billiton, Rio Tinto and Xstrata after a brutal political campaign and warnings it would cripple Australia's resources sector.

In its mid-year budget update in October, the government forecast the tax would bring in A$2-billion ($2.07 billion) in the current financial year, down from the A$3-billion May budget forecast, and raise A$9.1-billion over four years.

But media reports said global miners reported no liability for the tax in its first three months, while private forecasters Deloitte Access Economics on Monday said the tax would fall well short of Treasury's revenue estimates due to lower world commodity prices and a strong Australian dollar.

"That mix means the MRRT will have a dog of a year -- when China sneezes, the MRRT was always going to get pneumonia," Deloitte Access economist Chris Richardson said.

He said any drop in mining tax revenue would threaten the government's target of delivering a A$1.1-billion budget surplus for the financial year to June 30, 2013.

Trade Minister Craig Emerson defended the Treasury forecasts and said the government would still deliver a surplus budget.

"We take note of the forecast provided by officials and we stand by those forecasts: we stand by the MYEFO, the Mid-year Economic and Fiscal Outlook. We're on track for a surplus and they're the figures that we stand by," Emerson said on Monday.

Source: Reuters