Benefiting from the “zero tariff” policy, my country’s light cycle oil (LCO) import demand continues to rise

Light cycle oil (LCO) is a light oil that is a by-product of the catalytic cracking unit. Light cycle oil is a type of diesel base oil, which can be used to produce diesel or diesel blended products through hydrodesulfurization and other processes. In addition, light cycle oil can also be used as fuel in ships, large machinery and other fields.

Since my country does not produce light cycle oil, the current domestic market demand for light cycle oil is imported from Southeast Asia. There is no need to pay consumption tax on the import of light cycle oil, and the product can be used directly as a diesel blending material. After development in recent years, light cycle oil has gradually replaced diesel, and the demand for diesel fuel applications in my country continues to rise.

According to the “2021-2026 Young Cycle Oil (LCO) Industry Market In-depth Research and Investment Prospects Forecast Analysis Report” released by the Industrial Research Center It shows that my country’s light cycle oil mainly comes from South Korea and ASEAN countries. Among them, the amount of light cycle oil imported from South Korea is relatively high, reaching about 5 million tons in 2019, accounting for 65% of the total import volume; the import volume from major ASEAN countries is 230 million tons, accounting for 30% of total imports. The light cycle oil products produced in South Korea are of excellent quality and have preferential tariffs under the China-Korea Free Trade Agreement with a tax rate of only 3.7%. Therefore, they rank first in the domestic light cycle oil import volume. ASEAN countries have signed a free trade agreement with China and enjoy zero tariffs.

In recent years, my country’s light cycle oil imports have shown a continuous growth trend. Although my country’s light cycle oil imports declined due to the impact of the epidemic in the first half of 2020, as the epidemic gradually improved in the second half of the year, my country’s light cycle oil imports increased rapidly. The annual import volume was approximately 15.7 million tons. In terms of import demand for light cycle oil, the four major domestic provinces of Guangdong, Zhejiang, Shandong and Fujian have relatively high demand for light cycle oil.

During the two sessions in 2021, deputies to the National People’s Congress proposed to impose a consumption tax on light cycle oil. If the relevant documents are released, it will have a huge impact on the light cycle oil market. The levy of consumption tax on light cycle oil is mainly based on two considerations: first, light cycle oil enjoys the “zero tariff” policy, so there are more smuggling, counterfeiting, etc., making market supervision more difficult; second, the processing of light cycle oil After being converted into non-diesel, it will be sold to end vehicles, but this product does not meet the National VI diesel standards and causes serious pollution to the environment.

Industry analysts said that light cycle oil enjoys a cost advantage due to its “zero tariff” policy and has high demand for domestic applications. Import volume has continued to rise in recent years. However, due to the special characteristics of light cycle oil, market supervision is difficult, so the possibility of imposing tariffs on light cycle oil in the future increases. The biggest impact of tariffs on light cycle oil is to increase costs, which in turn will lead to a reduction in market demand and greatly affect the development of the industry. However, at present, the documents related to the collection of consumption tax on light cycle oil have not yet been released, and there is great uncertainty in the development of the industry.