CHINA DATA: July LCO imports fall to record low after start of consumption tax

China's light cycle oil imports slumped 92% month on month to a brand new record low 110,989 mt in July as the aftereffects of a consumption tax which started on June 12 kicked in, forcing importers to withdraw from the business of trading LCOs.

"We have stopped LCO business for about three months. Have to look for other opportunities, such as straight-run fuel oil or other products," a key LCO importer based in Guangdong province said.

July's LCO inflow was the lowest since May 2016 when S&P Global Platts first started to observe General Administration of Customs' data on the fuel.

The previous record low was at 252,884 mt on May 2017, the GAC data showed.

LCO imports from South Korea, the top supplier, stood at 46,646 mt in July, diving 96% from a year ago at 1.14 million mt.

"Unlikely to find a competitive replacement [for importing and blending] in the short term; it took about five years for the LCO market to become mature with stable buyers, suppliers and infrastructure," the importer said.

However, LCO imports over January-July increased 18.2% year on year to 9.61 million mt, thanks to the historically high inflow of 2.08 million mt in April 2021, the GAC data showed.

With 1,000-1,200 ppm sulfur content, LCO is a common blendstock for gasoil and is used in the mining, construction, fishing, industrial and agricultural sectors. A metric ton of domestic kerosene blended with imported LCO can yield 2-2.5 mt of gasoil.

From June 12 onwards, LCO imports were subjected to a Yuan 1,800/mt ($37.31/b) consumption tax, before the 13% value added tax, as the government sought to make the tax regime fairer and to encourage the use of more environmentally friendly fuels.

Mixed aromatics

At the same time, China had also imposed a similar consumption tax on imported mixed aromatics, which is also used as a blending material. However, the impact of the new tax on mixed aromatics was limited compared with that of LCO.

China's mixed aromatics imports dropped 65.8% month on month to an eight-month low of 239,510 mt in July, the GAC data showed on Aug. 24.

The previous low was recorded in November 2020 at 200,541 mt.

The tax caused the country's mixed aromatics imports to dip by a marginal 0.9% year on year to 3.86 million mt over January-July.

Since June 12, China had levied a Yuan 1.52/liter, or Yuan 2,105/mt, consumption tax before VAT on imported mixed aromatics.

Unlike LCOs, mixed aromatics is not only a blending stock in the manufacture of gasoline, but also a feedstock for petrochemical products. China will rebate the consumption tax levied on imported mixed aromatics to companies that use the mixed aromatics to produce petrochemical products as this is part of Beijing's efforts at encouraging value-added production. As such, market sources expect the import of mixed aromatics to continue as a petrochemical feedstock.