(MB) Base metals prices on the Shanghai Futures Exchange were mostly down during the morning trading session on Friday March 15, with the complex reacting to news that China will cut its value-added tax (VAT) rate for manufacturing and other sectors on April 1. Speaking to reporters at the close of the annual meeting of the National People’s Congress in Beijing on Friday morning, Chinese Premier Li Keqiang said that the VAT rate for the manufacturing sector will be cut to 13% from 16% at the beginning of next month. The news came somewhat as a surprise to market participants, who had been expecting the new rate to come into effect from May 1 instead. “The market widely believed that VAT will be lowered in May, but it has come earlier than expected,” a copper trader based in Beijing told Fastmarkets. “Base metals prices on the SHFE have a VAT rate [of 16%] already priced in so after it was announced that the VAT cut would come sooner than expected, SHFE base metals prices have came under pressure,” a Shanghai-based copper trader said. A delivery of 32,550 tonnes of the red metal into London Metal Exchange warehouses in Rotterdam on Thursday was a further headwind for copper prices. The delivery caused the backwardation in the exchange’s cash/three-month copper spread to narrow to $16 per tonne from $29 per tonne. Meanwhile, price-supportive upstream news could only cap the red metal’s losses this morning. “Traders shrugged off news that copper miner Codelco won’t restart two smelters this month as promised. Tough new environmental regulations have forced it to close the Chuquicamata and Salvador operations until they are upgraded,” Jack Chambers, interest rate strategist and economist at Australia and New Zealand Banking Group (ANZ), said in a morning note. “The market has known about Chuqicamata’s unstable operations since the end of last year. From a fundamental perspective, it is not fresh news,” a Shanghai-based copper analyst said. The most-traded May copper contract on the SHFE stood at 49,060 yuan ($7,299) per tonne, down by 50 yuan per tonne or 0.1% from Thursday’s close of 49,010 yuan per tonne.
