A move by theLondon Metal Exchange to potentially stop issuing warrants formetal stored in warehouses in Malaysia due to planned taxreforms could push more shipments into neighboring Singapore,traders and warehousers said on Tuesday.

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

It is not clear whether transactions related to LMEwarranted stocks might become liable to a goods and service taxfrom April 1, the exchange said.

If it cannot get confirmation by then that transactions andstorage charges will not be taxed, the LME will stop issuingwarrants at the two Malaysian locations from July 1, it said ina notice to members. This would prevent new metal at thewarehouses from being used to back LME contracts.

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

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

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

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

There may be some room for movement. According to Malaysiancustoms, exports would not attract the GST. 

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

One Singapore-based trader said the planned tax reform wouldnot have a big impact on charges for exported metal.

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

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

Prime Minister Najib Razak has pledged to beef up Malaysia''spublic finances by cutting expenditure and subsidies, as well asexpanding the tax base by implementing a 6 percent goods andservices tax from April.

-The 16th China(Guangzhou)Int’l Metal &Metallurgy Exhibition