Tokyo (Platts)--6Feb2013/607 am EST/1107 GMT

Japanese silicon traders and consumers said Wednesday the Chinese government's removal of a 15% export tax in December has had little impact on their buying habits, despite initial fears it would lead to major upheaval.

The removal had initially alarmed traders, who feared it would deflate their sales of non-Chinese silicon by making Chinese supply much cheaper, and curb efforts to diversify sources of supply from Brazil, Russia, Europe in 2012 amid political tension between Tokyo and Beijing.

But Chinese export prices have not fallen 15% since the removal of the tax, market sources said.

Japanese buyers of 553-grade 98.5% silicon metal and other high grades of up to 99.5% purity said the removal of the tax had not changed their buying habits -- those reliant on Chinese supply were continuing to buy from China, while those with diversified sources of supply were continuing to buy from their regular sources.

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Spot Japanese import prices for 553-grade 98.5% silicon metal fell 7.5% to $1,950-2,000/mt CIF Japan on January 10 from $2,120-2,150/mt on January 3, immediately after the tax was removed, according to Platts' assessments. Tight supply helped arrest the fall, sources said.

In fact, the limited fall prompted concerns that China may move to curtail its export supply. New taxes to replace the 15% export tax may be introduced, and tougher environmental regulations that may force some Chinese producers to cut output were also likely, Japanese buyers said.

Although buyers of non-Chinese silicon intend to maintain their commitment to diversified sourcing, it will not be easy for non-Chinese suppliers to expand their share of the Japanese market further, sources said.

"Customers who were buying from non-Chinese suppliers have not asked for volume reductions yet...but it will be difficult for non-Chinese suppliers to win new contracts as consumer demand falls amid a slow economy," a Japanese trader said.

A source close to a non-Chinese supplier said prospective Japanese buyers were asking for a reduction in prices in response to the Chinese tax removal.

"The possibility of China stopping silicon exports to Japan due to geopolitical tensions cannot be ruled out entirely, but there is no customer building its procurement policy based on such a scenario; they are in wait-and-see mode," another Japanese trader said.

PROCUREMENT POLICIES UNDER REVIEW SINCE RARE EARTH CURBS

Japanese companies started reviewing long-term procurement policies for all metals sourced predominately from China after it imposed restrictions on rare earth exports to Japan in 2010. Chinese silicon accounted for 91% of Japan's silicon imports in 2010.

Chinese customs data shows total exports of silicon metal (maximum 99.99% silicon) fell 18% year on year to 480,121 mt in 2012. Exports to Japan, China's largest customer accounting for 25% of its exports, fell 31% over the same period to 119,515 mt.

Part of the decline in Chinese silicon exports can be attributed to weak demand caused by a slow global economy, shutdowns in the solar industry, competition from low-priced material smuggled out of China and political tension between Tokyo and Beijing, said Xu Yingying, silicon metal analyst with Shanghai Metals Market.

Some Japanese buyers and Chinese sellers in late 2012 began diversifying their silicon sources and markets, respectively, on fears that strained ties between the two countries could affect or delay shipments, she added.

As a result, China's monthly silicon exports to Japan have fallen behind those to South Korea, normally China's second largest customer after Japan, since October, Xu said. China's silicon exports to South Korea rose 18% year on year to 29,545 mt over October-December, while those to Japan tumbled 57% over the same period to 15,880 mt.

However, Japan is likely to remain a major buyer of Chinese silicon metal in the near-term given the size of its end-user market and geographical proximity, Xu said.

Japan's three largest secondary aluminum alloy smelters typically buy over 500 mt/month of silicon metal.

China's total silicon exports are expected to exceed 500,000 mt in 2013, Xu said.

--Mayumi Watanabe, mayumi_watanabe@platts.com
--Vivian Teo, vivian_teo@platts.com
--Edited by Wendy Wells, wendy_wells@platts.com

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