Global energy and commodity price reporting agency Argus Media on Wednesday (22 January) issued a marine fuels industry related update in regard to developments in China:
China will fully refund value-added taxes (VAT) on supplies of fuel oil to international vessels at Chinese coastal ports from 1 February, boosting the country’s ambitions to create a bunkering hub to rival Singapore.
The announcement by government agencies including the finance ministry and customs bureau largely confirms what industry participants said had been agreed earlier this month. The 1 February date was not previously known.
The government will rebate the 13pc VAT charged on fuel oil sales, the government agencies said. There was no mention of the 1,218 yuan/t ($27.36/bl) consumption tax, but this will be waived if fuel oil enters export and import storage facilities monitored by customs authorities, an official at a state-owned refiner told Argus.
Further details, including any export quotas and the qualifications required for firms to apply for the rebate, remained unclear.
The lack of a rebate left Chinese refineries with negative margins on very low-sulphur fuel oil (VLSFO) production last year, giving them little incentive to produce fuel oil to meet domestic bonded bunker market demand. Suppliers could instead import fuel oil at a lower cost than buying from the domestic market.
China remains heavily reliant on supplies from the regional bunker hub of Singapore as result. But the rebate could reverse trade flows and increase Chinese LSFO exports to Singapore.
Chinese authorities have been pushing to develop the new bunkering hub of Zhoushan in Zhejiang province. But the tax constraints typically made it far more costly to refuel vessels at Zhoushan than at Singapore, although the spread narrowed — and even moved to a discount — late last year because of the impact of the International Maritime Organization (IMO)’s cap on Sulphur content in marine fuels.
The IMO 2020 rules took effect on 1 January, capping the sulphur content in marine fuels at 0.5pc, down from 3.5pc previously.
Source: Argus Media
Published: 23 January, 2020
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