China to Reduce Oil Tariffs

China will slash import duties on some energy products and raw materials starting July 1 in a bid to boost domestic energy supply and balance its international trade, the Ministry of Finance said.

Import tariffs on gasoline and fuel oil will be lowered to 1 percent from the current 5 percent and 6 percent respectively, and tariffs on diesel and jet kerosene will be totally removed, the ministry announced on its website.

The ministry had already slashed tariffs on more than 600 types of commodities at the beginning of this year. The current phase of tariff reduction involves 33 kinds of commodities, including energy products, textiles and emergency relief items.

Analysts said that the tariff reduction on energy products could boost gasoline imports, but is unlikely to cause a drop in the domestic gasoline prices.

"As changes in retail gasoline prices in China are decided by the National Development and Reform Commission (NDRC), the tariff adjustment cannot directly bring a change in retail prices," said Yang Hong, an analyst with Shanghai Toprise Information and Technology Co, an industry information provider.

Under the current pricing system, the NDRC will only consider to adjust retail fuel prices when international crude oil prices change by more than 4 percent over 22 straight working days.

However, "the tariff reduction (which will boost gasoline imports) can help guarantee gasoline supply in the domestic market," said Mai Wenzhao, an industry analyst with Argus Media, a global energy information provider.

Mai explained that major domestic oil refiners in the country will partly halt production in July and August to conduct repairs on machines and equipment, which will affect the summer oil supply to some extent.

And given the decreasing international oil prices, it is a good time for China to import gasoline.

International oil prices have fallen to the lowest point in the last three months, reaching $91 per barrel, 17 percent lower than the peak in April.

"The cost of gasoline importation is comparatively low currently," said Yang.

Gasoline only accounts for a small percentage of China's total imports of energy products. In 2010, China imported some 239 million tons of crude oil, but only 36.8 million tons of gasoline.

The abolition of the previous 9 percent tariffs for jet kerosene will, to some extent, lower the operating costs of airlines, according to analysts. However, the tariff adjustment is not very likely to cause a drop in fuel surcharges of airlines.

"Fuel surcharges were increased last month, but they could still hardly cover the costs resulting from jet kerosene price increases. Thus the surcharges are not very likely to be reduced this time," said Argus Media's Mai, adding that the adjustment in surcharges will not happen so frequently.