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China Considers Levying Tax On Oil By-Products

Beijing

China plans to start imposing consumption taxes on oil by-products such as light cycle oil and bitumen blend, which could upset the plans of traders and refineries who export such products to China, Reuters reported on Wednesday, citing four sources in the know.

Chinese officials are said to be proposing consumption taxes of the equivalent of more than $145.20 (1,000 yuan) per ton for mixed aromatics, bitumen blend, and light cycle oil (LCO), among others. This would effectively impose stricter regulations on imports of those products and boost the sales of domestically produced oil by-products.

“If taxes are imposed, I think this market will be dead,” a source with a South Korean refiner told Reuters.

According to two of the sources, China plans to impose a consumption tax of $203.30 (1,400 yuan) per ton of LCO, which is being sold as low-grade diesel in China. Consumption tax on bitumen blend—which is widely used as feedstock by the local independent refiners, the so-called teapots—is expected to be $174.30 (1,200 yuan). The consumption tax for mixed aromatics – which include benzene, toluene and mixed xylenes – could be as high as $305 (2,100 yuan) per ton, similar to China’s consumption tax on gasoline. Those mixed aromatics that are petrochemical products are used for blending with gasoline to achieve higher octane levels.

Related: OPEC Deal Extension Looks Shaky As Shale Hedges Production

China’s imports of LCO soared 135 percent annually to 4.46 million mt in 2016, Platts reported in February, citing data from China’s General Administration of Customs. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil that is chiefly used in the construction and fishing sectors.

Imports of mixed aromatics jumped by 81.4 percent compared to 2015, to stand at 11.7 million mt in 2016, which suggests that there was a significant rise in blending activity last year. According to Platts calculations, roughly 3 mt of mixed aromatics are needed to blend 10 mt of gasoline.

By Tsvetana Paraskova for Oilprice.com

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