China’s fuel oil tax rebate to support bunker hub aspirations: traders
Bunker fuel prices in China are expected to be more competitive following the implementation of tax rebates on fuel oil, supporting its push to be a bunkering hub, traders said.
Beijing is believed to have approved a long-awaited tax rebate on fuel oil, paving the way for domestic refiners to supply bunker fuel to ships plying the international route, S&P Global Platts reported late last week.
Presently, fuel oil produced domestically is imposed with a Yuan 1,218/mt ($173.40/mt) consumption tax and a 13% value added tax with no provisions for rebates, even for the supply to bonded storage for sale to ships plying international routes.
Thus, China relies heavily on imports for its fuel oil requirements, with an estimated 10 million mt to 12 million mt imported each year, market sources said.
“China’s refiners have the production capacity, they just need policy support,” a supplier said.
The tax rebates will allow for bunker fuel prices in China to compete with international prices, and thereby encourage local refiners to increase production of the fuel.
However, the rebate will only apply for the sale of fuel oil for bonded storage, and not for the export of fuel oil cargoes.
This will further cap prices and divert volumes from Singapore to China, market sources said.
China’s top four state-owned refiners had announced plans to boost their combined production capacity of low sulfur fuel oil to 18.15 million mt/year in 2020, higher than domestic demand of 12 million mt/year.
ZHOUSHAN BUNKERING HUB
The provincial government of Zhoushan, China’s port city which comes under the Zhejiang Free Trade Zone, is taking great measures to promote Zhoushan as a major oil trading hub, and China’s largest bunkering port. It was the first Chinese city allowed to grant marine fuel licenses.
Some of the measures introduced by the government included cross-region direct supply, and one warehouse or one vessel multi-supply, and allowing locally registered companies to mix imported raw materials to produce tax-free fuel oil that can be sold as bonded bunker fuel or be re-exported.
Sinopec, Asia’s largest oil refiner, moved its global bunker fuel center to Zhoushan from Beijing in May last year and has targeted to produce 10 million mt/year of IMO-compliant low sulfur bunker fuel in 2020 across 10 selected refineries, Platts reported previously.
“It is in the local government’s interest to keep prices competitive,” a trader said.