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UPDATE 2-China may raise tax on imports of refined zinc

(Adds details, background and quotes, changes dateline)

HONG KONG/SINGAPORE, Feb 17 (Reuters) - China may raise a tax on imports of refined zinc to 5 percent from 3 percent, smelter officials and traders said on Tuesday, a move that may be bearish for prices and put it at loggerheads with its trading partners.

The duties, which smelter officials say are intended to support domestic smelters and allow them to benefit from restocking by China’s State Reserves Bureau, could be a sign that Beijing is toning down its policies to open up trade and limit the headlong expansion of the metals sector.

“The Chinese government seems to be changing policy towards metals, away from encouraging cutbacks to one where it wants to maintain production and preserve employment,” said Gayle Berry, an analyst at Barclay Capital in London.

“That’s bearish for metals -- China needs to cut production and these new policies are not good news for prices.”

She said the tax changes, which may go into force as early as March, may even misfire and create an even bigger headache for smelters in the longer term.

Beijing is also expected to reinstate a 5 percent tax on imports of primary aluminium that it had cancelled two years ago from March 1 to support aluminium smelters. [ID:nHKG242414]

Zinc prices in China, the world’s top producer of the metal, have stayed higher than the cost of imports after the SRB bought 59,000 tonnes of refined zinc from seven smelters last month as part of Beijing’s plan to support smelters at a time of anaemic demand.

The SRB had also bought 290,000 tonnes of aluminium from eight smelters in December, boosting domestic prices.

“China only imports a tiny amount of aluminium. The tax will support Shanghai Futures Exchange prices, but that will also encourage smelters to restart production,” Berry said.

Trade data on Tuesday showed China imported about 25,000 tonnes of unwrought aluminium in January, just 2.5 percent of the country’s output of over 1 million tonnes a month.

Berry estimated that higher aluminium prices in Shanghai since the start of the year may have encouraged a million tonnes of idled or new capacity to be fired up.

“There is a low probability that these (moves) will go through. Chinese imports and exports have dropped significantly and with volumes at these levels, it would be difficult for the government to impose new taxes,” said Wan Ling, an aluminium analyst at CRU.

“PROTECTIONISM” CHARGE

Traders said the proposal could leave China open to accusations of protectionism, especially after it lambasted the United States for a “Buy American” clause in the $787 billion plan to jump-start the world’s biggest economy passed on Friday.

“China is big but it is part of the global market,” a trader at an international trading house said.

“The Chinese started complaining of U.S. protectionism. If they start increasing import duties on everything, there’s going to be a trade war.”

China’s official Xinhua news agency has slammed the “Buy American” requirement of the U.S. economic stimulus package, saying in a commentary that trade protectionism is a “poison” that will harm poor countries. [ID:nPEK84246]

“History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships,” Xinhua said, in response to the passing of the U.S. plan.

William Adams, an analyst at BaseMetals.com, reckons China’s actions aren’t really protectionism.

“The SRB is buying metals to support domestic smelters. That is their aim rather than to make money for smelters in other countries. The problem is that if they keep domestic prices up even if they maintain the barriers, metal will continue to flow in.” (Editing by Ben Tan)

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