The province of Shandong, the key refining hub of China’s independent refiners, has raised the tax rebates for the fuel oil imports of six local refiners, in a move to ease the downward pressure on margins and boost economic activity.
The Shandong provincial government has increased the consumption tax rebates to which the refiners, also known as teapots, are entitled for sales of gasoline and diesel refined from imported fuel oil, sources familiar with the regulation told Reuters this week. The tax rebates have now been lifted by 25 percentage points to between 75% and 95%.
The move is expected to ease the pressures on struggling independent refiners and boost industrial activity in the province of Shandong, according to analysts.
Shandong’s private refiners, which are short on crude import quotas or haven’t been allocated such, rely on imports of fuel oil to process it into more valuable fuels for transportation, including diesel and gasoline.
Unlike the state refiners, private refiners in China need to be granted import quotas by the government to be able to import crude to process at their refineries.
As of January 1, 2025, China raised its import tariff on fuel oil to 3% from 1%. The authorities also reduced rebates on the consumption tax for imported feedstock.
As a result, at least four independent refiners in China are said to have halted or plan to idle operations as taxes on imported feedstock rose at the start of the year. The higher costs are dragging many of the independent refiners into losses.
Now, the new higher tax rebates of the Shandong province could improve the profit margins of the six independent refiners. These are Chambroad Petrochemicals, Hongrun Petrochemical, Lihuayi Group, Xinyue Group, Shandong Jincheng Petrochemical Group, and Xintai Petrochemical, according to Reuters’ sources.
The higher tax rebate is not expected to lead to a jump in fuel oil imports in the near term, as crude oil prices are relatively cheaper compared to the start of this year and most of June, when oil spiked with the Middle East conflict.
By Tsvetana Paraskova for Oilprice.com
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