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New tax policy in China affects petroleum product trade in Asia

October 06/2021

MOSCOW (MRC) -- In June of this year, China implemented a new consumption tax policy that affects imports of two fuels: mixed aromatics, which were blended into gasoline, and light cycle oil, which was blended into diesel, said Hydrocarbonprocessing.

These components were previously exempt from Chinas consumption tax. This new policy has reduced Chinas imports of these products and its exports of petroleum products.

China increased its imports of light cycle oil and mixed aromatics in 2020 and the first half of 2021, before these products were subject to the consumption tax. Once the tax took effect, Chinas imports of light cycle oil decreased from an average of 390,000 barrels per day (b/d) in the first six months of 2021 to 20,000 b/d in July and 30,000 b/d in August, the first two full months after the change in policy. Similarly, Chinas imports of mixed aromatics fell from an average of 170,000 b/d in the first six months of 2021 to 70,000 b/d in July and 30,000 b/d in August.

Light cycle oil and mixed aromatics may not be economical for gasoline and diesel blending under the new tax policy, but Chinas policy provides a tax rebate on these fuels when they are used for petrochemical production, which likely explains why these fuels are still imported, albeit at lower levels.

These tax policy changes are also affecting Chinas petroleum product exports. China exported relatively large quantities of distillate and gasoline in the first half of 2021 because of higher refining output and a high export quota at the beginning of the year. However, under the new tax policy, domestic refiners have reduced exports, likely to make up for the decrease in the supply of light cycle oil and mixed aromatics.

As per MRC, chemical producers in eastern Germany are on the verge of shutting down plants as they can no longer cope with the spike in prices for energy, in particular natural gas. The price explosion on energy markets is taking dramatic proportions. The level of natural gas prices, in particular, has threatened to become an existential question for many producers.

Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,396,960 tonnes in January-July 2021, up by 7% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market were 841,990 tonnes in the first seven months of 2021, up by 29% year on year. Supply of propylene homopolymers (homopolymer PP) and block-copolymers of propylene (PP block copolymers) increased, whereas supply of statistical copolymers of propylene (PP random copolymers) subsided.
Author:Anna Larionova
Tags:Asia, petroleum products, PP, PE, neftegaz, petrochemistry, China, Russia.
Category:General News
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