June 26 (Bloomberg) -- Henan Yuguang Gold & Lead Co., China's biggest lead and silver producer, and Baotou Aluminum Co., said their profit will be hurt by China's decision to raise export taxes and cut tax incentives.

China imposed a 10 percent tax on lead exports from June 1, and cut tax rebates to 5 percent from 13 percent on silver exports from July 1, Henan Yuguang said in a statement to the Shanghai stock exchange today. The nation also removed a tax rebate on aluminum rods and tubes, Baotou Aluminum, controlled by Aluminum Corp. of China Ltd., said in the exchange filing.

The country, the biggest producer of lead and aluminum, is reducing or scrapping tax benefits for metal exporters to curb a record trade surplus and encourage production of higher-value goods. Rising lead prices may help offset the increased tax costs for producers, allowing them to maintain profits, Shanghai Securities Co.'s analyst Zhu Limin said.

``If London Metal Exchange lead prices continue to rise, there's no need to worry about Yuguang profits,'' said Zhu.

Henan Yuguang shares rose 6.1 percent to close at 18.85 yuan today in Shanghai after losses of as much as 5.5 percent. Baotou Aluminum shares have been suspended from trading since June 11 as the company is in talks with its parent on ``restructuring'', the parent said June 13.

Lead for delivery in three months on the LME has risen 64 percent this year. The metal traded at $2,725 a metric ton at 3:38 p.m. Shanghai time, up 0.6 percent.

Exports to Fall

Exports of lead from China may decline 10 percent by 2010 because of the cancellation of tax breaks, research firm Beijing Antaike Information Development Co. said May 30. Net exports this year would be kept at the same level as last year's.

The gross profit margin for lead smelting was about 10 percent last year, Zhu said.

Lead exports accounted for 28 percent of Yuguang sales of the metal in the first five months of this year, down from 41 percent last year, the company statement said. Exports of silver accounted for 96 percent in the first five months, it said.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: June 26, 2007 03:48 EDT