KUALA LUMPUR: Malaysia’s customs agency hopes to reach an agreement soon with the London Metal Exchange, after the LME threatened to stop registering new metal in the country if a new tax was levied in two bonded zones there, a customs official said here the other day.
Malaysia is a major storage point for LME metals, holding more than 420,000 tonnes, 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 inventories.
Malaysia’s Ministry of Finance and Customs will engage with the LME “in the near future” to resolve the issue, Subromaniam Tholasy, director of the goods-and-services tax (GST) unit in the country’s customs department, told Reuters in a text message.
On Monday, the world’s top metals market said it had been seeking details of how a new Malaysian GST, due to take effect next month, would affect metal stored in LME warehouses in Johor and Port Klang.
In the absence of confirmation by April 1 that transactions and storage charges will be spared tax, the LME will stop issuing warrants at the two Malaysian locations from July 1, it said in a notice to members.
That would prevent new metal at the warehouses from being used to back LME contracts.
Traders said the new rules could prompt holders of metal to sell stocks or shift them to LME-registered warehouses in nearby Singapore, Taiwan or South Korea. More likely, they would hold inventory until it was bought, but were not likely to accept fresh metal into Malaysia until the issue was clarified.
Two traders said a small amount of nickel had been moved out of warehouses.
“Right now there is no panic,” said on physical trader in Singapore. “I don’t really see too many people moving material out in a hurry. It sounds like more of a procedural issue and that it will be resolved.”
To be approved as a good delivery point in the global LME storage network stretching from Europe to Asia, a site must satisfy conditions that include freedom from taxes on transactions involving the metals held in warehouses or storage charges.
“If I’ve got metal stored in there, then my warehouse operator would be subject to GST on whatever rent they charge me, and that would not be acceptable to the LME,” he said.
“The bigger worry is, what if Johor gets delisted? But that is not what the LME is saying at the moment.”
