China's Ministry of Commerce recently issued the first batch of refined oil product export quotas for 2025, totaling 19 million tonnes, flat with the previous year. The quotas for general trade decrease by 9.38%, while those for processing trade increase by 29.35%, reversing trends of the past few years. The primary reason for this shift is the reduction in export tax rebate rates, which directly affects export profit margins under general trade. The new trend aligns with GL Consulting's earlier prediction that state-owned oil companies might seek to increase export quotas under processing trade methods (VAT-exempt), such as processing with imported or supplied materials, while cutting back on general trade quotas.
Since December 1, 2024, China has reduced the tax rebate rate from 13% to 9% for refined oil product exports under general trade, increasing the export cost of gasoline, diesel, and jet fuel by approximately $3-3.3 per barrel. Gasoline, with its lower export profit margins, is most affected. Following the policy announcement, the gasoline crack spread in Singapore surged by $3 per barrel, or 59%, over a month since November 20, whereas diesel and jet fuel crack spreads remained stable.
According to OilChem data, China planned to export 1.94 million tonnes of refined oil products in December, marking a 37% decrease from the previous month. This decline is attributed to limited remaining export quotas for 2024 and the recent tax rebate adjustment. Specifically, gasoline exports are set at 540,000 tonnes, down 49.06% from November, diesel at 50,000 tonnes, a plunge of 77.27%, and jet fuel at 1.35 million tonnes, down 25.41%.
Additional export quotas are expected to boost month-on-month growth, yet a year-over-year decline persists. China's export plan for January 2025 is 3.34 million tonnes, down 17.12% YoY. Diesel exports are set to drop significantly by 67.68% to 320,000 tonnes, gasoline is down 23.3% to 790,000 tonnes, while jet fuel exports are projected to increase by 10.95% to 2.23 million tonnes.
It's noteworthy that the adjustment in export rebates does not necessarily result in reduced export volumes. Exporters can mitigate the impact of lowered export rebates by optimizing their trade structure, leveraging processing trade methods that are VAT-exempt. China's primary objective for refined oil exports is to balance domestic supply and demand rather than maximize profits. For example, in 2022, despite reaching record-high export profits, the export quota was only 34.49 million tonnes, the lowest since 2017.
Nevertheless, the reduction in export rebates and the tightening of general trade export quotas underscore China's stance on discouraging refined oil product exports. China's energy security consideration and its "Dual Carbon" goals make the inclusion of more private firms in the export system unlikely. While the export quotas are expected to decline in the long-term, temporary increases may occur due to supply-demand imbalances.
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com.
