- Chinese government approved long-awaited 13% value-added tax rebate on fuel oil to take effect February 1.
- Rebate to pave way for domestic refiners to supply bunker fuel to ships at Chinese ports plying international routes.
- Singapore Marine Fuel 0.5% market dipped in Asia after the value-added tax rebate approval.
- The Singapore Marine Fuel 0.5% February/March spread was offered at $15.75/mt at 11 am Singapore time (0300 GMT) Thursday to no takers.
- In the swaps market, the [February] Five-GO spread dropped to minus $8-minus $9/mt after the news from minus $3-minus $4/mt.
- China could potentially be a fuel oil exporter as its domestic demand is around 12 million mt/year, lower than local refiners’ capacity of 18.5 million mt/year.
Chinese government Wednesday announced a long-awaited 13% value-added tax rebate on fuel oil would take effect February 1, reports Platts.
The long awaited fuel oil VAT
- The Singapore Marine Fuel 0.5% market edged lower in mid-morning trade in Asia Thursday.
- This was after the Chinese government Wednesday announced a long-awaited 13% value-added tax rebate on fuel oil would take effect February 1.
- This rebate would pave the way for domestic refiners to supply bunker fuel to ships at Chinese ports plying international routes.
Bunkering competitive at Chinese ports
China’s tax rebate policy for fuel oil supplies is aimed at making bunkering more competitive at Chinese ports, compared with other key hubs such as Singapore, says an article published in Bloomberg.
Boost local fuel oil sales
China’s approval of tax rebates for fuel oil suppliers may boost local sales of shipping fuel, but the country’s ports are unlikely to challenge Singapore’s status as Asia’s bunkering hub
The Singapore Marine Fuel 0.5% February/March spread was offered at $15.75/mt at 11 am Singapore time (0300 GMT) Thursday to no takers. This indicates tradable value was lower than that. The time spread was assessed at $15.75/mt at Wednesday.
Unfavorable economics?
VLSFO from Chinese refineries will largely be sent to the domestic bunkering market and is unlikely to reach other Asian hubs. Exports to other countries will incur hefty taxes, making economics unfavorable.
Five-GO spread
A Singapore-based trader said, “In the swaps market, the [February] Five-GO spread [spread between Marine Fuel 0.5% and 10 ppm Gasoil] dropped to minus $8-minus $9/mt after the news from minus $3-minus $4/mt.”
China typically imports 1 million mt/month of bunker fuel, mainly from Singapore. A Chinese supplier said, “Our bunker fuel volumes are 100% imported.”
What to expect from the VAT approval?
The approval is expected to reduce China’s imports from Singapore and, in the longer term, help ease supply tightness in Marine Fuel 0.5% in Singapore.
Chinese refiners will produce more
According to a shipowner, in the long term, Chinese refiners will produce more, but how long that takes to happen and really affect things is another question.
Ability to export fuel oil
China could potentially be a fuel oil exporter as its domestic demand is around 12 million mt/year, lower than local refiners’ capacity of 18.5 million mt/year.
A China-based trader said, “[The ability to export will be] a potential game changer.”
Any extra quota for tax rebate?
However, the announcement did not include export quota arrangements for the tax rebate.
A major Chinese refiner said, “We will definitely produce more for export if there is an export quota in the future.”
Supply tightness in Singapore to ease?
As such, market sources are not expecting the approval to significantly ease the supply tightness in Singapore in the near term.
The shipowner said, “We are not expecting to see any impact [in Singapore] because the market is still quite constrained in terms of logistics. It’s not as easy as China turning the taps on [for exports].”
A wait-and-see stance
Even so, a few market sources have adopted a wait-and-see stance in the last two trading days. A Singapore-based bunker trader said, “While I don’t think there is any impact yet, we prefer to monitor things for now.”
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