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Monday, January 24, 2022

Copper to exit Malaysia as traders race to beat tax hike

MELBOURNE: Nearly half of the London Metal Exchange’s Asian copper stocks are set to exit Malaysian warehouses, after the exchange could not confirm with the government that a new tax would not be levied on bonded metals trade from next month.

The move is the first sign that traders are racing to shift metal out of the country, which is the top storage location for LME inventories in Asia, ahead of a 6 percent goods and services tax that is to be implemented from April 1.

Almost 50,000 tonnes of copper was cancelled across the Malaysian ports of Johor and Klang, representing three quarters of Malaysia’s copper stock, 40 percent of the LME’s Asian inventories, and about 15 of its total stock, latest data showed.

“On the cancellations, they’re all running from the taxes,” said a trader at a bank in Singapore.

The LME said on Monday it might stop issuing warrants for metal stored in warehouses in Malaysia from July if it does not get clarification from the government about planned tax reforms.

Malaysia holds more than 420,000 tonnes of LME registered metal, including nearly half of the LME’s nickel stocks, 85 percent of its tin, a third of its lead and almost a fifth of its copper.

A director at Malaysia’s customs agency said the department hoped to reach an agreement with the LME soon.

Traders don’t expect the metal to leave the LME system for good, rather that it will be shipped to LME sheds in nearby Singapore, Taiwan or South Korea. “It will just get moved somewhere else,” the trader said.

DUMPING GROUND?

As the metal most likely to suffer a supply shortfall, traders agreed copper stocks would be the first to get moved out of the country.

Traders flagged the potential for Malaysia to become a “black hole” for unloved nickel in particular, which is drowning in record high stocks and an expected surplus.

For other metals, such lead and tin, seen in larger surpluses this year, Malaysia could draw in metal.

Rising storage and shipping costs after April 1, would make Malaysian stocks more expensive than other LME locations, reducing its appeal to buyers, and underpinning prices and premiums – a delivery surcharge to obtain metal.

“If you don’t have a buyer for your metal, premiums are rubbish, stick it in (a Malaysian warehouse). The warehouses there won’t want the metal to go,” said a source in London.

“That big black hole will tighten the market.”

Copyright Reuters, 2015

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