London 18/07/2016 - Tin and lead are the two base metals most likely to be affected should a trade case filed by the US against China at the World Trade Organisation (WTO) lead to the removal of export taxes of both metals, market observers suggested.
The Office of the US Trade Representative (USTR) said last week it has launched a trade enforcement action against China at the WTO, arguing that Beijing's export duties on nine key metals and minerals violated the country's commitment to the WTO and gave Chinese manufacturers an unfair advantage.
The case seeks to remove Chinese export duties of 5-20 percent on copper, lead, tin, antimony, cobalt, graphite, various magnesia compounds, talc and tantalum, which the USTR said are key inputs into US industries including aerospace, automotive, electronics and chemicals.
The forms of copper targeted in the case are ore, concentrate and matte, which market participants said are unlikely to be exported out of China with or without export taxes due to the country’s huge appetite for the raw material given its large smelting capacity.
But the forms of tin and lead named in the case are unwrought metal - China currently enforces a 10-percent export tax on both products.
China is already a net exporter of refined lead despite the export tax on the metal. It exported 49,706 tonnes last year, up 42.6 percent on the 2014 total. If the export tax is removed, more metal could flow out of the country, sources said.
"If overseas prices are higher than domestic prices, the metal will be exported out," a Shanghai-based lead analyst said.
For tin, the price differential between the local and foreign markets will also remain crucial to whether the metal would be exported in the absence of an export tax.
Tin supply currently exceeds demand in China but an unattractive physical arbitrage between the domestic and overseas markets has limited exports, sources noted.
China exported only 562 tonnes of refined tin and tin alloy last year although its export quota for tin and tin products in 2015 was 17,000 tonnes and is unchanged this year.
"We hardly use up our tin export quota every year," a Chinese tin smelter source told FastMarkets.
But even if China were to remove its export tax on refined tin, state-owned Chinese tin smelters are likely to hold back on exports - the metal, like copper, is considered a strategic resource, some sources said.
"We would rather sell domestically. It's political," another smelter official said.
But the date when China could ultimately be forced to remove export taxes on these metals could still be some way off.
Consultations are the first step in the WTO dispute settlement process, the USTR statement noted. If the US and China are not able to reach a mutually agreed solution through consultations, the US may request that the WTO establish a dispute settlement panel to examine the matter.
"These duties are China's attempt to game the system so that raw materials are cheaper for their manufacturers and more expensive for ours," US trade representative Michael Froman said. "This scheme is directly at odds with WTO commitments China has made, and as we've shown time and again, we will hold them accountable to their commitments."
The latest trade case is the 13th case the Obama Administration has launched against China at the WTO, the USTR also noted, adding that the US "has won every case that has been decided so far".
China was forced to remove its export duties on minor metals such as silicon and magnesium in 2013 after the WTO made a ruling in the previous year that China's restrictions on raw materials were against WTO trading rules.
(Additional reporting by Meimei Qin, editing by Mark Shaw)