February 17, 2012 / 9:53 AM / 8 years ago

China raises mining taxes on iron, tin, other minerals - paper

SHANGHAI (Reuters) - China has increased mining taxes on iron ore, tin and a range of minerals in a bid to conserve resources, a newspaper reported on Friday, a move analysts said was aimed at regulating the industry by hiking costs for smaller producers.

A worker uses a shovel to pile up iron ore next to a freight train at a railway station in Yingtan, Jiangxi province December 17, 2010. REUTERS/Stringer

The increase was effective February 1, the Shanghai Securities News said. In addition to iron ore and tin, the levy also covers mining for molybdenum, magnesium, talc and boron, but officials at three major mining companies said they had not been notified of any levy changes.

China is the world’s largest tin producer and its biggest consumer of iron ore. It also dominates the global production of molybdenum, used to strengthen metal alloys, and magnesium.

Analysts said tin miners would likely be the most affected by the higher taxes, which would increase production costs and then cut output by driving smaller firms out of business.

Consumers may also turn to cheaper imports if local raw materials become too expensive due to the tax, traders said.

Iron ore production, and imports, however, are likely to remain unchanged as steel mills, the biggest consumers of the raw material, prefer to import higher quality iron ore than rely on inferior domestic supplies.

“Generally speaking, it is the trend in China to use a resource tax to increase control over exploitation, and taxes are likely to be raised again in the future,” said Judy Zhu, metals analyst with Standard Chartered Bank in Shanghai.

“Iron ore production is not likely to be affected much because the tax only takes up a very small share of the total cost,” Zhu said.

David Lennox, commodities analyst with the Sydney-based Fat Prophets, also said global iron miners such Vale VALE5.SA, Rio Tinto (RIO.AX)(RIO.L) and BHP Billiton (BHP.AX)BLT.L were unlikely to significantly benefit from the tax change.

“The authorities are trying to remove marginal (iron ore) producers from their backyard. It will certainly, at the edges, help (overseas) miners but likely other domestic sources will fill the void first,” he said.

SMALLER MINES WORST HIT

According to the newspaper, taxes on iron ore had been raised to 80 percent of the standard levy, from the previous 60 percent. The standard tax for iron ore miners ranges between 2 and 30 yuan a tonne, depending on its quality, analysts said.

The newspaper also said the tax on tin ore now stands at between 12 and 20 yuan per tonne, up from the previous range of 0.6 to 1 yuan per tonne.

China produced 1.3 billion tonnes of iron ore in 2011, much of it from low grade mines that are only cost-efficient when prices are high. But the 20.2 percent increase in output over the year was not enough to keep down imports, which rose 10.9 percent to 686 million tonnes.

A manager with an iron ore trading firm that also owns mining operations in southern China said the tax would price out these smaller miners but imports would not be affected.

“I think this will make those small mines wonder whether it is worth producing, but it won’t affect traders much. As long as supplies are good, most steel firms in China prefer to use imported iron ore anyway,” he said.

Ran Jun, tin analyst with state-backed research firm Antaike, said the hike could increase the price of ores and refined metals, which may spur consumers to find cheaper alternatives.

China’s top tin ore and metal producer Yunnan Tin (000960.SZ) said it would pass on any price increase to consumers, as did China Molybdenum (3993.HK), the country’s top miner of the metal.

Both firms, however, said they had not been notified of a tax increase.

In November 2011, China expanded a regional resource tax reform plan to the entire country. That reform included new taxes on rare earths, coking coal, and natural gas as well as a change in the tax on crude oil from a volume-based to a sales-based levy.

Revenues from China’s resource tax totalled 60 billion yuan in 2011, up 43 percent over 2010, the paper reported.

Reporting by Gabriel Wildau and Ruby Lian in SHANGHAI, Polly Yam in HONG KONG, David Stanway in BEIJING and James Regan in SYDNEY; Editing by Miral Fahmy

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