China Tax Move Seen Failing to Slow Industrial Corn Consumption

China’s removal of tax benefits for industrial corn processors won’t significantly slow growing consumption, researchers including the China National Grain & Oils Information Center said.

Companies had anticipated the government’s move and took steps to mitigate the impact, analyst Li Xigui of the state- owned researcher said today in a report. Even without tax deductions the industry is still profitable, analyst Ding Ling of Shanghai JC Intelligence Co. said.

The Ministry of Finance yesterday waived tax deductions for corn costs paid by makers of starch and biochemicals, effective through June 30. The government is concerned about food inflation and is curbing industrial use to ensure livestock farmers have access to supply at a lower cost, three people who had received a government document said this week.

China is the world’s second-biggest consumer. State reserves may have privately bought 1 million metric tons of U.S. origin last month to bolster stockpiles, signaling policymakers recognize that demand may outstrip production, Wang Chen, research director of Wanda Futures Co. said April 18. Speculation China may increase imports has contributed to a more than doubling of Chicago prices in the past year.

The removal of tax deductions “signals a strengthening of the government’s will to control prices, but the market believes the impact is more psychological than substantial,” Li said. The peak of the buying season in the northeast growing regions is over, so the move will affect smaller producing provinces and a two-month implementation period is short, Li said.

July-delivery corn gained 1.2 percent to $7.6625 a bushel on the Chicago Board of Trade. On theDalian Commodity Exchange, January corn rose as much as 0.4 percent to 2,430 yuan ($372) a ton and last traded at 2,427 yuan. Futures gained 26 percent in the past year on concern that supply was shrinking.

(Source: http://www.bloomberg.com/news/2011-04-20/china-tax-move-seen-failing-to-slow-industrial-corn-consumption.html)