As ships globally have switched to lower sulfur fuels, or use emissions-removing devices, to comply with new IMO rules, China’s State Council, gave the go-ahead to waive taxes on the 0.5% or very low sulfur fuel oil (VLSFO), leading the way for the final launch of the policy to kick off Chinese production of the fuel.

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It is said that China has a levy of a 1,218 yuan ($175.73) per tonne consumption tax and 13% of value-added tax on fuel oil production; such costs make its refiners unable to compete with regional suppliers like Singapore and South Korea.

What is more, the world’s largest oil importer has been relying on imports from Singapore to meet its demand and the move will help improve regional supplies of the new fuel.

According to Reuters, Beijing’s move had long been anticipated, but market players will now keep close watch for the exact timing as that will decide when China’s massive production will start to flow.

Now, Beijing is likely to restrict, or even ban, wholesale exports of the ship fuel, to let companies focus on growing the domestic marine fuel market, as coastal cities like Zhoushan in eastern Ningbo province aims to become a regional bunkering hub.

An oil official said to Reuters that

This has been one of the feedback views during the long discussions of the policy formulation, and this will be implemented in the initial stage.

Chinese refiners are expected to supply the new VLSFO to bonded storages along the country’s coast, and from there they will be retailed to ships by about a dozen licensed bunker dealers; supplies to bonded tanks are considered as exports and will be managed by a quota system.

In July, the Shanghai Futures Exchange revealed that China planed to launch a bonded low-sulphur bunker fuel oil contract that will enable foreign investors to participate in trading by the end of 2019.

Specifically, it was said that China National Petroleum Corporation had planned a low-sulphur fuel oil supply of 4 million tonnes a year; the first batch of the fuel was dispatched from its Dalian Petrochemical plant in early June.