Pakistan’s import tax set to apply brakes on gasoline flows from China

Beijing: Pakistan's decision to slap a 10 percent duty on gasoline imports from China is set to dry up flows from the North Asian supplier to the South Asian buyer in the coming months, with these cargoes potentially heading to Southeast Asian markets, analysts and trade sources told S&P Global Commodity Insights.

In fact, there were no flows in June following three straight monthly falls from a record high 574,000 mt, or 157,000 b/d, in March, data from China's General Administration of Customs showed July 20.

But Pakistan's import tax is unlikely to impact China's transport fuel outflows, which has been thin due to limited quota availability as well as weakening export margins.

The Pakistani government, having decided to impose a 10 percent duty on gasoline imports from China effective July 1, has halted, at least for now, the trend of rising inflows to Pakistan from China, that started in mid-2020.

One regional trader said: "Besides the new tax on Chinese gasoline, I believe a major factor limiting Pakistani gasoline imports is that they are facing some financial issues at the moment."

Earlier, gasoline imports from China were exempted from any duties under phase-II of the China Pakistan Free Trade Agreement, whereas domestically produced gasoline was subjected to a deemed duty of 10%, thus making imports of gasoline from China economically attractive for Pakistan.

Following a change in Pakistan's import specification and a tax incentive, Chinese gasoline exports to Pakistan have skyrocketed since mid-2020. Trade flows were almost nil prior to that, Shreyans Baid, analyst for South Asia at Platts Analytics said.

China's gasoline exports to Pakistan jumped 93.8 percent year on year to 1.56 million mt, or 11.6 million barrels, over the first half of 2022 despite outflows drying up in June. This made Pakistan the second-biggest destination for Chinese gasoline cargoes then, behind regional trading hub Singapore, the GAC data showed.

It was also the only destination that recorded steady growth among China's top five gasoline recipients.

PetroChina was the main supplier of Chinese gasoline to Pakistan, according to market sources and the oil giant's previous press releases.

However, China is unlikely to be impacted by the shutting of this export outlet as the country sets to reduce its oil product exports to ensure domestic supply and cut carbon emission, while export margins narrow, trading sources said.

Overall exports of the auto fuel from China, meanwhile, fell 41.6 percent year on year to just 5.59 million mt over the first half, according to the GAC data.

"I expect to see a little over 600,000 mt of gasoline exports come out of China in July as we are expecting domestic demand to recover," a Singapore-based trader said. China exported 726,000 mt of gasoline in June.

On paper, the export margin for gasoline declined to about $15/b as of July 19 from slightly over $30/b in early July, a Shanghai-based trader revealed.

As Pakistan was absent from the destination list in June, China lifted its gasoline exports to Malaysia by 406.7% from May to 181,000 mt, although flows were 11.1% lower from a year earlier.

The recovery in gasoline exports to the Southeast Asian country reflected the renewed demand from Malaysia on the back of easing COVID-19 restrictions and post Eid al-Fitr festivities, which typically feature an uptick in interstate travel, market sources said.

"With the imposition of [a] duty on Chinese gasoline imports, the flow is expected to reduce, and these cargoes are likely to head to Southeast Asian markets instead," Baid said.