China seen levying consumption tax on fuel blends in Jan -traders

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Published: December 5, 2013

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BEIJING/SINGAPORE, Dec 5 (Reuters) – China is expected to levy a hefty consumption tax on biodiesel as early as next month, to curb high imports of the blended fuel that have displaced domestic diesel sales, traders said.

The world’s top energy consumer is also expected to impose a tax on blending components for gasoline and diesel in January, a year later than expected, the traders said on Thursday.

The taxes would create a supply gap for both diesel and gasoline in China, forcing state refiners to scale back exports and supporting margins in Asia.

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China is looking at a tax of 940 yuan ($154) per tonne for biodiesel, and 1,385 yuan ($227) for power kerosene and mixed aromatics – blending components for diesel and gasoline.

China’s State Administration of Taxation had initially planned to impose a tax of about 1,350 yuan on the latter two at the start of this year.

“It’s all part of a gray market that the government intends to clean up,” said a Beijing-based oil trader.

While the tax on power kerosene and mixed aromatics was expected, biodiesel grabbed China’s attention after a state refiner complained that supplies of the blended fuel were disturbing the market, another Beijing-based trader said.

Biodiesel imports, mostly by private firms including storage operators, have surged to an estimated 1.7 million tonnes for 2013 on tax and trade incentives. But some shipments contain a far lower biofuel component than required by Chinese customs.

“The so-called biodiesel imported was basically normal diesel,” the trader said.

As a result, imported biodiesel displaced local diesel sales, prompting state refiners Sinopec Corp and PetroChina to boost diesel exports to new highs and those of gasoline to a three-year high.

Biodiesel with less than 30 percent of biofuel is classified as “petroleum”, while that with 30 percent or more biofuel is categorised as “miscellaneous chemical products”, say China’s 2012 customs rules.

The new consumption tax will be imposed on the former.

Total imports of this blend were about 500,000 tonnes in the first six months this year. Since then average monthly purchases have doubled to around 200,000 to 300,000 tonnes, shipped mainly from Malaysia, Indonesia and Thailand.

Small refiners and independent fuel dealers in late 2010 imported power kerosene, a blend not subject to consumption taxes and that could be easily turned into diesel. The practice eventually led to detention and fines for two traders.

Imports of mixed aromatics have soared since 2009 to peak at 3.6 million tonnes in 2011, falling back slightly to about 3 million in 2012. ($1=6.0924 Chinese yuan)

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