Fuel import duty cuts to slash oil-firm losses, boost supplies
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Shanghai Daily, June 28, 2011
China's latest import duty cuts on fuel products could help ensure supplies ahead of the peak summer consumption season and reduce the losses state oil companies suffer from overseas purchase, analysts said.
China will remove import tax on diesel and jet kerosene and cut tariffs on gasoline and fuel oil to 1 percent, effective from July 1, to boost supplies and balance its trade, the Ministry of Finance said last Friday.
"The reduction is meant to ensure refined fuel supplies in the domestic market against the backdrop of high oil prices," Haitong Securities analyst Deng Yong said.
However, the impact on gasoline and diesel will be relatively small because their imports only account for 1-2 percent of China's apparent demand annually and imports are subject to a quota system, he said.
Currently, import tax for gasoline and diesel is 5 percent and 6 percent, respectively, making imports of the fuels an unprofitable business under capped fuel prices.
Imported gasoline prices, including tax, are up to 100 yuan (US$15.5) higher per ton than domestic wholesale prices, while imported diesel is 300-400 yuan more expensive, according to China International Capital Corp analyst Guan Bin. With the lower duties, import costs will be 200-300 yuan below domestic wholesale prices for gasoline and up to 100 yuan lower for diesel, he said.
This could ease cost pressure for Sinopec Corp and PetroChina Co, which have lost money this year in their refining business due to high crude oil rates and government-capped fuel prices.
The tax reduction on jet kerosene, from 9 percent to zero, will further boost imports and help airlines. China relied on imports for about 40 percent of its kerosene consumption last year, Haitong's Deng said.
A diesel shortage could hit China in the third quarter due to planned maintenance in a number of major refineries and also because factories are to fire diesel-powered generators amid a power shortage which could be the worst in history.
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