S Korean fuel suppliers face headwinds as Vietnam revises 2021 import tax

Singapore — South Korean refiners are expected to face increasing competition in 2021 as Vietnam revises its motor fuel import taxes in a move that would erase the competitive advantage that the Northeast Asian oil product exporters have been enjoying since 2018.

The revised policy, according to documents seen by S&P Global Platts, would equalize the tax for gasoline cargoes from South Korea and ASEAN countries, which over the period of 2018 to 2020 had stood at 10% and 20%, respectively.

From 2021 onwards, the import taxes for gasoline cargoes from both ASEAN countries and South Korea will be lowered to 8%, according to the documents.

Regular Vietnamese importers of gasoline, such as Petrolimex, typically opt for cargoes of South Korean origin, with open tenders seeking gasoline for domestic use specifying either South Korea or Vietnam's Van

Phong Terminal as loading ports.

Petrolimex's other tenders, which allow for cargoes from ASEAN sources are instead channeled into Cambodia, which the company also has a presence in, industry sources noted.

"With both rates set to drop to 8% effective next year, ASEAN countries will become more competitive and we should see Vietnam importing from ASEAN in 2021," Platts Analytics said.

SOUTH KOREAN SALES UNDER PRESSURE

With the revised import taxes, South Korean refiners will face more headwinds in 2021, with international fuel sales and profits in 2020 already dented by the coronavirus pandemic.

South Korea exported 16.38 million barrels of gasoline to Vietnam in 2019, but the shipments are estimated to fall by 38% to around 10.02 million barrels this year and decline further to around 7.65 million barrels in 2021, according to fuel marketing sources at SK Innovation, S-Oil Corp., GS Caltex and Hyundai Oilbank surveyed by Platts.

"We are on a wait-and-see mode right now. There will be some negative impact for us [South Korea], but we will still need to assess the extent of the damage," one source with a South Korean refiner said.

SK Innovation, for example, the largest refiner in South Korea, suffered a net loss of Won 16.14 billion ($14.21 million) in Q3, compared with a net profit on Won 174.26 billion a year earlier.

South Korea's third biggest refiner S-Oil Corp. likewise saw revenue drop 37.4% year on year to Won 3.9 trillion ($3.46 billion) in Q3, from Won 6.23 trillion a year earlier, on lower prices.

VIETNAM, ASEAN TO BENEFIT

On the other hand, ASEAN sources have welcomed the change, indicating that with the revised imports taxes, the opening up of Vietnam as an outlet for gasoline helps to alleviate growing regional supply.

"Over the past few years, we have seen a growth in new available cargoes from China, Brunei and even Malaysia, with RAPID [refinery] slated to [restart] soon. So, any new outlet from an end-buyer that allows for

cargoes to be truly absorbed is a good thing," a Singapore-based source said.

Agreeing, another ASEAN-based source added: "I'm not sure if Chinese cargoes will enjoy the benefit. But traders with barrels from ASEAN sources such as Thailand or Singapore might try to rearrange their

operations to send the ASEAN cargoes to Vietnam and Chinese barrels somewhere else. So it's still a net gain for the region."

With new large refineries starting up globally, and demand restrained at least into 2021, there is still too much capacity chasing after too little demand, JY Lim, oil markets adviser at S&P Global Platts Analytics said. Lim noted that average global oil demand in 2021 is expected to be lower than in 2019 by 2.4 million b/d.

In Vietnam, buyers of gasoline such as Petrolimex, Saigon Petro and PV Oil are also looking forward to the revised tax changes, noting that premiums from domestic and imported sources will fall in view of the

increased competition.

"South Korean [refiners] certainly will have to strongly dump down their premiums if they still want to sell MG [motor gasoline] into Vietnam," a source based in Vietnam said. "[The] price formula of Binh Son and Nghi Son will also have to adjust down from the current 10% to 8% if Binh Son and Nghi Son want to sell MG," he added.