* China buyers cancel two late-April loading cargoes -
* A third cargo may also be cancelled soon - source
* Interest for May loading cargoes dwindles - refining
(Adds analyst, Sinopec comment, teapot reaction)
By Jessica Jaganathan
SINGAPORE/BEIJING, April 6 Traders in North Asia
are rushing to cancel loadings of a range of oil products for
sale to China, ahead of a planned Chinese consumption tax that
will make the trade uneconomic.
At least two light cycle oil (LCO) cargoes have been
cancelled for late April loading from South Korea ahead of the
planned tax on the refinery by-product, two sources familiar
with the matter said on Thursday. They declined to be named as
they were not authorised to speak with the media.
The cargoes were purchased by Chinese companies who have in
turn cancelled their requirement, one of the sources said,
adding that another Chinese oil trader is trying to cancel a
Interest for May-loading LCO cargoes has also disappeared, a
Japanese refining source said.
A senior source with a Shandong-based independent refiner
said his company has held off booking new cargoes beyond a
40,000-tonne parcel of mixed aromatics for late April arrival.
China plans to impose consumption taxes on oil by-products
such as mixed aromatics, light cycle oil and bitumen blend,
sources with knowledge of the matter said on Wednesday. The plan
will likely squeeze the margins of the independent refiners. The
combined imports of these products are estimated at 20 million
tonnes a year.
The move will close a loophole that allowed Chinese buyers
to import light cycle oil, then sell it locally as low-grade
diesel, avoiding import taxes that would normally be levied on
"Demand for these products have in recent years been
distorted because of exemptions from consumption tax," said
Seng-Yick Tee, an analyst with consultancy SIA Energy.
A consumption tax of 1,400 yuan ($203) per tonne could be
levied for LCO, the sources said on Wednesday, with traders
expecting the tax in May or June.
The Chinese government has considered the taxes since 2012
but was more determined this time as imports of these products
rose and ate into the market share of state-owned companies like
Sinopec Corp, said senior Beijing-based traders and
oil company officials.
The tax advantages of LCO have led refiners to maximise
production over other fuels, the two sources with knowledge of
the South Korean cargoes said.
LCO was selling at a premium to Korea gasoil prices of about
$6 a barrel on a free-on-board (FOB) Korea basis at its peak
earlier this year, which in turn attracted cargoes from as far
away as Europe, traders said.
The premium for LCO has since dropped to about $2 to $3 a
barrel, but volumes of the fuel into China have soared.
Imports of LCO into China rose to as much as 600,000 tonnes
a month by March from 350,000 tonnes a month last year, two
traders familiar with the market said.
($1 = 6.8990 Chinese yuan renminbi)
(Reporting by Jessica Jaganathan in SINGAPORE, Chen Aizhu and
Meng Meng in BEIJING; Editing by Richard Pullin and Christian