China lifts fuel oil import tariff to 3% from 1%, effective Jan 1

China will raise its fuel oil import tariff to 3% from the current 1%, effective Jan. 1, 2025, according to an announcement by Customs Tariff Commission of the State Council Dec. 26.

The move will elevate the cost of feedstock fuel oil imports, thus narrowing the refining margins of small-sized independent refineries, also called "teapots".

These refineries mainly import fuel oil under the harmonized system (HS) subheading 27101922, classified as "No. 5-7 fuel oil", and occasionally under subheading 27101929 as "other fuel oil".

In 2024, imports labelled under 27101922 incur a 1% tariff, while those under 27101929 are free from tariff.

According to the announcement, the commission will remove both subheadings 27101922 and 27101929, combining the barrels into a new code, 27101924, with the description of "fuel oil" for the subheading, effective Jan. 1.

Simultaneously, barrels imported under the new code 27101924 will attract a 3% tariff, the announcement stated.

In January-November, about 7.35 million mt (143,000 b/d) of imports under 27101922 were subject to tariff, S&P Global Commodity Insights estimated. The volume edged up 1.9% year over year from 7.21 million mt in January-November 2023.

Meanwhile, taxable imports under 27191929 surged 237.5% year over year to 1.68 million mt in the same period, from 497,108 mt.

Rising tax costs

Since October, teapots' fuel oil imports have been on a downtrend amid expectations of Beijing amending consumption tax regulations, potentially increasing the tax burden.

Refining sources said the higher tariff would result in cost increases of Yuan 60-100/mt ($7.89-13.70/mt), further dampening import interest.

Fuel oil serves as an alternative feedstock for teapots when they face crude shortage due to limited import quotas.

"We will monitor the refining margin, and it is not that urgent to make procurement decision as we just received crude import quotas for 2025," said a Shandong-based refiner.

However, refiners that are not qualified for crude import quotas will have to bear the rising tax burden, said a second source with a non-quota holder.

Russian M100, one of the most popular fuel oil grades for teapots, was scarcely heard offered on Dec. 30. In mid-December, barrels had been heard offered at a premium of around $65-$70/mt to 380 CST HSFO Mean of Platts Singapore assessment, sources said.

Teapots' fuel oil imports fell 36.5% month over month to a four-month low of 580,000 mt in November, marking the second consecutive monthly decline since September, Commodity Insights data showed. On a year-over-year basis, fuel oil imports were down 52.3% in November.