By Robert Young – Exclusive to Moly Investing News

Molybdenum-Tax-Increase-Could-Spark-Higher-Imports-In-ChinaOn February 1st, China’s new resource tax on molybdenum and several other minerals went into full effect. The original announcement, made last November by the county’s Ministry of Finance and the State Administration of Taxation stated the new resource tax increase was aimed at conserving the country’s resources and curbing pollution. The resource tax on Molybdenum was raised to 12 yuan per ton, the China Taxation News, a publication of the State Administration of Taxation reported in the Shanghai Securities News.

The new tax rate for molybdenum is the first increase since January 1st, 2006 and is spread across five different categories of mines; from class one at the high end to class five at the lowest. In detail, the applicable molybdenum tax rate rolled out as follows; first class mine is 12 yuan per ton; second class mine is 11 yuan per ton; third class mine is 10 yuan per ton; fourth class mine is 9 yuan per ton and fifth class mine is 8 yuan per ton. Overall the increase is equivalent to a 4-fold gain per ton of molybdenum.

Molybdenum was not alone in the tax increase. China also hiked the resource tax on iron ore, tin, magnesite, talc and boron. The tax on iron ore experienced the highest increase, almost 20 times the previous rate according to the Shanghai Securities News.

Officials from the Ministry of Finance and the State Administration of Taxation said that China’s tax rate is quite low and the tax increase is beneficial for protecting their important resources. “All the minerals concerned are scarce resources which are of important strategic values. The tax raises the signal the government is strengthening efforts in resources conservation,” said a staff member from the China Nonferrous Metals Industry Association (CNMIA) in a recent report.

According to statistics from the CNMIA and the United States Geological Survey (USGS), China ranks first in terms of molybdenum reserves with 38.4 percent of the world’s total.

High strength steel alloys on average contain 8 percent molybdenum. Over the past 50 years, world demand for the mineral has grown at an average rate of 4 percent annually with a brief interruption in 2008 due to the economic recession. More recently, the demand has been growing by more than 6 percent mostly due to Chinese consumption. The impact of China’s recent growth and the demand for hard commodities has had a dramatic effect on the market. Half of the global steel production worldwide comes from China, which consumes 33 percent of all molybdenum.

China also expanded a regional resource tax plan to the entire country. That reform included new taxes on 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.

In the past, China has taken steps, including fiscal measures to slow mineral production growth to conserve the environment. The government is also increasing tax rates to spur electricity saving in power consuming industries after the country missed its energy reduction target for the five year period that ended in 2010.

Overall revenues from China’s resource tax totaled 60 billion yuan ($8.8 billion) in 2011, up 43 percent over 2010 according to reports. Some analysts feel the move is aimed at regulating the industry by raising costs for smaller producers and that the changes in the tax will have little impact on costs, though they will boost tax revenue for local governments.

“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, a metals analyst with Standard Chartered Bank in Shanghai in a report.

RBC Capital Markets has forecast molybdenum growth rates at 8.4 percent in 2012 and 8.8 percent in 2013, before falling back to trend growth of just over 5 percent in 2014 and 2015. The report also stated that China had been the main driver of growth in molybdenum demand over the past five years and that it expects this trend to continue throughout its forecast period.

The issue with the statistics of molybdenum production and consumption in China is the figures are not reliable and accurate. This makes it difficult in making forecasts of supply and demand of the mineral. World molybdenum production is just over 480 million pounds. By 2016 it is thought to approach 600 million pounds and by 2021, near 700 million pounds. China’s consumption is currently estimates to be 170 to 180 million pounds per year, about 36 percent of the world’s consumption.

The production cost of molybdenum in China is said to be $12 to $13 per pound, which is slightly higher than western producers. These estimated costs plus the new tax increase could create more imports of moly on a larger scale should the country want to maintain its current level of supply on hand.