March 20, 2015 / 1:30 AM / 4 years ago

Malaysia reassures metals traders on tax as copper set to exit

KUALA LUMPUR/MELBOURNE (Reuters) - A new Malaysian tax will not affect stored metals, a customs official said on Thursday, seeking to reassure traders who were preparing to ship out most of the London Metal Exchange (LME) copper stored there.

Men walk past the London Metal Exchange (LME) in London, July 22, 2011. REUTERS/Paul Hackett

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

The following day, owners “canceled” almost 50,000 tonnes of LME copper inventories, giving notice they were ready to ship metal out of warehouses in the Malaysian ports of Johor and Klang, LME data showed. [0#MCUSTX-LOC-GRD]

“They (metals traders) don’t have to panic. They won’t be impacted. The GST (Goods and Services Tax) will be neutral to the businesses,” Subromaniam Tholasy, director of the GST unit at Malaysia’s Customs Department, told Reuters.

An announcement will be made next week after a meeting of all parties concerned, including the LME and the finance ministry, he added.

Malaysia is Asia’s top storage location for LME inventories in Asia and the canceled copper represented nearly three quarters of stock held there, 40 percent of the LME’s Asian inventories, and about 15 of total LME stock.

Tholasy said the government was looking at two options to neutralize the impact on metals inventories of a 6 percent goods and services tax that is due to take effect from April 1.

“One is, even though there is a GST, it doesn’t stick, because it’s claimable ... Alternatively, we’re also looking at whether we could provide some relief,” he said.

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.

Traders don’t expect the canceled metal to leave the LME system for good, rather that it will be shipped to LME sheds in nearby Singapore, Taiwan or South Korea.

Analyst Nicholas Snowdon at Standard Chartered in London said he expected the LME and Malaysian authorities eventually to come to an agreement.

“But until that happens it makes complete sense to put metal in the delivery queue with a view to having to move it out of the country potentially.”

LME spokeswoman Kathy Alys said on Thursday: “The LME hopes to limit any market disruption ahead of the 1 April deadline by receiving clarification from the Malaysian authorities.”

She added: “However, the LME is committed to maintaining a fair and orderly market, and will always work with warehouse owners and LME users to help them adjust to any changes.”

Addtional reporting by Josephine Mason in New York and Eric Onstad in London; Editing by Ruth Pitchford

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