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Thu 17 Dec 2009, 16:54 GMT

China raises fuel oil import tariff


Fuel oil imports expected to fall in January and February as buyers rush to bring in cargoes.

China has raised the import tariff on fuel oil to 3 percent for next year, the Finance Ministry said on Wednesday.

The fuel oil tax increase, which is said to be a move by the government to combat pollution, will be a further blow to importers who will have to factor in the new import costs in addition to those implemented at the beginning of this year.

In January 2009, China made the controversial decision to increase consumption tax on a number of oil products to many times their previous levels as part of the government's policy to promote energy efficiency. Fuel oil also came under the new fuel tax structure.

Under the new policy, consumption tax on fuel oil was increased from CNY0.1 per liter to CNY0.8, equivalent to an increase of around CNY830 (USD 121) per metric ton, or roughly 35 percent of the retail price for fuel oil.

Market sources claimed at the time that so called "teapot refineries" were being squeezed out of the market and that they were on the central government's shortlist for elimination as they are less environmentally-friendly and energy efficient.

These refineries, mainly located in the southern province of Guangdong, China's manufacturing hub, and in the eastern Shandong province, use fuel oil as feedstock as they have limited access to crude oil. The use of cheaper feedstock enables them to compete with the state-owned refineries when producing products for the domestic market.

The new 3 percent tax rise will represent an extra cost of 80 yuan ($12) per tonne for importers based on current prices, according to market sources.

This week's decision is reported to have led to a buying rush ahead of the January tax rise, similar to the one seen last year.

China's fuel oil imports skyrocketed 115.5 percent in December 2008 compared to the same month in 2007 as refiners and traders rushed to import the fuel ahead of the tax increase on January 1st. The figure was also 90 percent higher than in November 2008.

Traders expect imports into China to fall in January and February after the new import tariff is implemented.

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