BEIJING, June 8 (Reuters) - China is offering a 5 percent tax rebate on exports of corn starch and ethanol in an effort to help corn processors and spur corn consumption amid huge stockpiles after a record harvest, the finance ministry said on Monday.
The refund on the 17 percent value-added tax, effective from June 1, is likely to help processors raise their production because it lowers the barrier to the export market. Previously, corn exports were not eligible for any rebate.
Many mills are running at about 60 percent of capacity due to weak demand from buyers such as the paper industry, which consumes starch.
"The policy will help starch makers to raise production capacity. Many small ones were already closed while big ones were running at 60 to 80 percent of their capacity," said Feng Lichen, manager with China Dalian Yigu Information Consulting Co. Ltd.
China's corn industries, which also make food products such as sweeteners and flavour enhancers like MSG, process about 50 million tonnes of corn a year, about 30 percent of the country's expected record harvest of more than 160 million tonnes.
China exports about 300,000 tonnes of corn starch a year, equivalent to half a million tonnes of corn. Ethanol exports totalled 108,125 tonnes last year, far below the level of previous years when oil prices drove up demand for biofuels.
Chinese starch makers were managing to make some exports this year but at below cost, said Feng, and the government's refund may offset the losses.
Beijing's stockpiling of corn, totalling about 35 million tonnes since late last year, has frequently pushed domestic prices above international prices and dried up supplies in the northeast of China.
Traders said Beijing was considering selling some of the
state corn reserves to processors in the area and also offering
subsidies to offset higher corn prices there.
The sale talk had pressured Dalian futures <0#DCC:> last week and prices were traded further down on Monday, with the most traded January 2010 contract at 1,655 yuan ($242.2) per tonne by 0300 GMT, a fall of 21 yuan from Friday.
($1=6.832 Yuan)
(Reporting by Niu Shuping and Tom Miles; Editing by Ken Wills)