Starting January 2025, China's independent refineries relying on imported fuel oil as feedstock for gasoline and diesel production will face a dual cost squeeze due to:
(1) The import tariff on fuel oil rises from 1% to 3%, effective January 1, 2025.
(2) The fuel oil consumption tax deduction ratio is reduced from full exemption (100%) to 50-60%.
Impact Analysis:
These policy adjustments are expected to raise feedstock and tax costs for independent refineries by 500-700 yuan/tonne, surpassing current marginal profit margins and potentially pushing some into operational losses.
- The tariff hike will impact approximately 20 million tonnes of imported fuel oil annually, primarily affecting independent refines using it as a primary or supplementary feedstock. Based on the average fuel oil import prices in 2024, these refiners' feedstock cost is expected to rise by 60-80 yuan/tonne, further squeezing their profit margins. The average refining margin of Shandong-based independent refiners plunged 64% YoY to 292 yuan/tonne in 2024, dipping further to 216 yuan/tonne by early January 2025, according to OilChem data.
- The lower consumption tax deductions will primarily affect independent refineries heavily reliant on fuel oil (both domestic and imported grades) and bitumen mixture as feedstock, potentially pushing up their tax cost by 450-600 yuan/tonne. This is likely to accelerate the shift toward imported crude oil, reducing reliance on fuel oil and bitumen mixture.
As GL Consulting reported in its China Policy Perspective September 2024 Issue, the consumption tax policy was initially scheduled for October 2024, but was postponed due to opposition from local independent refineries facing operational challenges. Recently, the Shandong provincial government mandated local refineries to summit their consumption tax deduction ratios. However, they had already secured feedstock supplies in advance. As of January 24, Shandong's fuel oil imports rose by 38.2% month-on-month in January 2025.
As of now, this policy adjustment is limited to Shandong Province and applies only to refineries producing gasoline and diesel. It does not affect enterprises using imported fuel oil or naphtha as feedstock for chemical production.
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