LME may stop issuing Malaysia metal warrants over tax changes

(Adds market reaction, details)

MELBOURNE/NEW YORK, March 17 (Reuters) - A move by the London Metal Exchange to potentially stop issuing warrants for metal stored in warehouses in Malaysia due to planned tax reforms could push more shipments into neighboring Singapore, traders and warehousers said on Tuesday.

The world's top metals market has been seeking details on how a new Malaysian tax, due to come into effect next month, will affect metal stored in LME warehouses in Johor and Port Klang, the LME said on Monday.

It is not clear whether transactions related to LME warranted stocks might become liable to a goods and service tax from April 1, the exchange said.

If it cannot get confirmation by then that transactions and storage charges will not be taxed, the LME will stop issuing warrants at the two Malaysian locations from July 1, it said in a notice to members. This would prevent new metal at the warehouses from being used to back LME contracts.

Nearly half of the LME's nickel stocks sit in Malaysia, as well as 85 percent of its tin, a third of its lead stocks and 15 percent of its copper inventories. By far the hardest hit warehousing company would be Glencore -owned Pacorini, which operates 20 of 47 warehouses there.

The LME said it would contact warehouse companies approved to operate there, together with the relevant port authorities.

"We understand that GST will be imposed for services and for storage etc...It's already less than two weeks to the date that they will implement," said a warehousing source.

He said his customers were looking at alternatives, including storing metal off warrant, while sending fresh shipments to Singapore. They were unlikely to move Johor metal, he said.

There may be some room for movement. According to Malaysian customs, exports would not attract the GST. (Link: http://gst.customs.gov.my/en/ib/Pages/ib_ss.aspx)

To be approved as a good delivery point in the global LME storage network, a location must meet certain conditions, including no taxes on transactions for metals held in warehouses or on storage charges.

One Singapore-based trader said the planned tax reform would not have a big impact on charges for exported metal.

"Exports out of Malaysia will be zero rated, meaning no GST will be applicable, so if you are taking cargo from an LME warehouse and exporting it you will not pay any GST," the trader said.

"The problem may occur, if you want to move cargo warehouse to warehouse, as no set legal guidelines are in place for that."

Prime Minister Najib Razak has pledged to beef up Malaysia's public finances by cutting expenditure and subsidies, as well as expanding the tax base by implementing a 6 percent goods and services tax from April. (Reporting by Josephine Mason; Editing by Andre Grenon and Richard Pullin)