China is set to implement a tax overhaul that will increase costs for imported fuel oil, leading independent refiners to reduce their purchases. This change, anticipated to take effect in October, involves adjustments to consumption tax rebates for refiners selling gasoline and diesel derived from imported fuel oil. The new policy is expected to boost state revenue while inflating costs for importers.
Independent refiners, commonly referred to as “teapots,” typically use fuel oil as a feedstock, but many are already struggling with thin processing margins due to a sluggish economy and the rise of electric vehicles. As a result, production among these refiners has dropped to multi-year lows.
The tax changes are projected to raise feedstock costs by nearly 400 yuan ($57) per ton, potentially forcing smaller plants reliant on fuel oil to halt operations or close altogether. A trading manager from an independent refiner indicated that they received verbal notice of the impending policy change from tax authorities.
The expected tax adjustments have stalled discussions on new imports, ending a brief rebound in China’s fuel oil purchases over the past two months. Currently, Beijing charges 1,218 yuan ($172.50) in consumption tax for each ton of imported fuel oil, providing full rebates when the fuel is refined into gasoline and diesel. Under the new policy, rebates will only be based on the refined fuels produced, raising costs by 365 to 487 yuan per ton.
This impending change is already impacting fuel oil prices, with suppliers from Iran, Russia, and Malaysia likely to feel the effects of reduced Chinese demand. Spot cargoes have recently been offered at discounts compared to benchmarks, reflecting the market’s reaction to the anticipated tax policy.