The lack of available storage in China had limited the import of light cycle oil in May and June, ahead of the implementation of a new consumption tax on June 12, market sources told S&P Global Platts June 24.
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The inflow in May dropped 23.5% to 1.59 million mt from the record high 2.08 million mt in April, data from the General Administration of Customs showed on June 21, despite the fact that Chinese buyers were eager to import as many barrels as possible before the introduction of the new tax.
From June 12 onwards, imported LCO was subjected to a Yuan 1,800/mt ($37.52/b) consumption tax, before the 13% value added tax, as the government sought to make the tax regime fairer and encourage the use of more environmentally friendly fuels. LCO is essentially a blending material to produce gasoil.
"Not much room available to store new arrivals amid slow domestic sales, so we are unable to import more barrels," a Guangzhou-based LCO trader said on June 24, adding that imports were unlikely to spike in June.
In contrast, imports of both bitumen blend and mixed aromatics, which were also slapped with new consumption taxes effective June 12, rose in May, the GAC data showed. Bitumen blend imports surged 72.4% month on month to hit an all-time high of 4.16 million mt in May, while mixed aromatics imports gained 25.7% from April to 667,780 mt.
High stock, slow consumption
China's current storage capacity for LCO is about 2 million mt, according to trading sources.
"April imports were too high and took up most of the space," the Guangzhou-based source said.
Moreover, Chinese refineries had boosted gasoil production in May and reduced exports of the barrels, which weighed on the market.
The country's gasoil output from refineries rose 1.6% month on month to 12.72 million mt in May, while exports of the fuel slumped 38.3% to 1.68 million mt, data from the National Bureau of Statistics and the GAC showed.
As a result, several Sinopec refiners said gasoil sales slowed with prices under pressure.
Over the first five months of this year, China imported 8.3 million mt of LCO, 61.5% higher on the year.
South Korea was the top supplier, delivering 5.26 million mt of LCO to China and contributed 63.4% to market share, GAC data showed.
China's LCO top suppliers ('000 mt)
Source: General Administration of Customs