04 January 2013 11:23 [Source: ICB]
Prices of methyl tertiary butyl ether (MTBE) in China are expected to drop in the first quarter of 2013 as a result of weak demand and subdued trade amid a long holiday period, market sources say.
Fuel consumption will be weak in the first quarter of 2013
Copyright: Rex Features
In addition, the long Lunar New Year holiday period, which takes place on 9-15 February, is expected to dampen transactions because traders and producers are typically absent from the market at that time.
The Lunar New Year is an important traditional holiday in China and many factories typically suspend production for 15 days or longer. Additionally, a new rule on consumption tax, which will take effect from 1 January 2013, has also contributed to the bearish sentiment in the MTBE market, traders said.
According to the new rule announced on 16 November, all liquid petroleum products produced from crude oil or other feedstocks will be liable for consumption tax, unless there are national or industry standards on the products and the producers submit inspection reports to authorities to show their products comply with the standards. The rule also extends the taxpayers from producers to sellers, stating that if a seller of the products cannot prove that the tax is already paid, the seller will be the taxpayer.
Currently, consumption taxes are levied on seven petroleum products - gasoline, diesel, base oil, solvents, naphtha, jet kerosene and fuel oil - with only the producers, often refiners, as the taxpayers. MTBE is a liquid petroleum product which has no national or industrial standard established at present. Under the new rule, it will be a taxable item from 2013.
If a CNY1.00/litre ($0.16/litre) consumption tax is imposed on MTBE, gasoline blenders' costs will increase, which will erode their already squeezed margins, traders said.
Chinese MTBE producers are actively applying for tax exemptions, but it is unknown if these will receive approval from the tax regulators.
Gasoline blending traders indicated that until there is a clear policy on the consumption tax issue, they have little interest in next year's MTBE imports. In mid-December, ex-terminal barge prices of MTBE in southern China have declined to yuan (CNY) 9,000-9,200/tonne from CNY9,200-9,300/tonne in early November, according to ICIS C1, an ICIS service in China.
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