September 08, 2008

China cuts import tax on oil products for 2008

Chinese ministry of finance said that China will halve its import tax on gasoline, diesel and kerosene to 1% from January 1st 2008 to encourage more overseas buying to meet strong demand. It added that the import duty for fuel oil will be kept at the same rate of 3%. The ministry set the import duty for naphtha at 1% for next year and kept the fuel oil import duty at the same rate of 3%. It also extended a 5% export duty for crude oil.

The oil products tax cuts, last made in November 2006 from previous rates at 5% to 6%, came along with more drastic cuts in metals import duty and increases in export tariffs for steel products, as Beijing sought to reduce its record trade surplus and also to curb energy intensive investment. The cuts on diesel import duty come just days after Beijing decided to waive its 17% value added tax on diesel fuel imports between December and March to help it cope with domestic shortage.

It is certainly favorable for imports. But the final economics will depend on global oil markets, transportation cost versus the controlled domestic market. Chinese state oil firms Sinopec Corporation and PetroChina had shunned imports of the key transportation fuel until November, as the business incurred losses with import costs surging while domestic rates rigidly capped. They finally raised the purchases in the last couple of months to near peak levels after the country suffered through a serious diesel shortage.

Crude export in the January to November 2007 has dropped by 41% YoY to 3.2 million tonnes.