China will cut taxes on iron ore from
next month as Beijing acts to ease the burden on struggling miners, many of
whom have been chalking up losses as global prices plummet.
It marks China's first move to help domestic iron ore producers
amid a global glut that has forced many high-cost miners out of the market as
big, lower cost suppliers from Australiaand Brazil ship more to
the world's top buyer.
The cabinet said that it would cut the amount of tax it collects
by half to 40 percent from May 1.
The move shows how despite pledges to slim down inefficient
sectors, China appears to be prepared to do what it can to keep some
domestic miners afloat, potentially deepening a global glut that could pressure
depressed prices even more.
"In order to improve the operating environment of iron ore
enterprises, promote structural readjustment, support the integrated
development and upgrade of upstream and downstream sectors and ensure state
resource supply security, the meeting decided from May 1 to cut the proportion
of iron ore resource taxes that are collected, and collect 40 percent of the
stipulated tax burden," the country's cabinet said on Wednesday.
China's current resource tax burden on its iron ore mining
sector is among the highest in the world and compares to a tax of around 8
percent in Australia, the biggest exporter of the raw
material.
"Providing this tax subsidy means the Chinese miners will
continue to produce. If that is the case, the strategy of the top 3 suppliers
of pushing high-cost Chinese supply out of business will not work," said
Helen Lau, mining analyst at Argonaut Securities in Hong Kong.
Three-quarters of China's iron ore mining capacity is
operating at a loss and capacity utilisation rates at small mines dropped to as
low as 20 percent at the end of last year, Yang Jiasheng, chairman of the
Metallurgical Mines Association of China, said last month.
Only about 3 percent of China's 4,037 iron ore mines are large
scale, with the rest mostly small.
The price of iron ore fell to below $50 a tonne last week
.IO62-CNI=SI, the lowest since records began in 2008, with prices down by about
two-thirds since the start of last year.
Including those in China, Morgan Stanley estimates
that more than 210 million tonnes of iron ore capacity globally has been cut,
or 15 percent of the total, as of last month.
"Our model continues to report seaborne market surpluses of
50-200 million tonnes, restricting the medium-term price outlook to a narrow
range of just $55-$65/tonne," the bank said in a report on Monday.
(Reporting by Manolo Serapio Jr. in Singapore and David Stanway in Beijing;
Editing by Ed Davies)
Source-
reuters