S. Korea mulls measure to curb rising oil imports from Japan
South Korea is considering eliminating an import tariff exemption for gasoline and gasoil traded on the online spot oil market since the measure has increased imports from Japan without helping lower domestic oil prices.
The government launched the online spot market on March 30, 2012, on the Korea Exchanges (KRX). It was designed as a trading platform using retail pump station owners as buyers, and refiners and importers as sellers. The plan was a part of government efforts to cut retail oil prices by fostering competition and weakening the market dominance of the country’s four refiners.
In a bid to improve lackluster online trading, the government introduced incentives on July 1, 2012, such as exempting imported oil products traded on the online spot oil market from tariffs, as compared to a 3% tariff imposed on imported oil products sold offline.
The government reviewed the exemption every six months and has extended it twice, with the next expiration date being June 30. If the government does not extend the exemption, the 3% tariff will begin on July 1.
“We are still discussing with related government offices over whether to extend the exemption,” an official at the Ministry of Trade, Industry and Energy said. But he said the government acknowledged that the exemption has led to increased oil imports from Japan, which forced local refiners to ship out more oil products.
However, Park Sung-Chan, a KRX official involved in the online oil trade, said he has not been given any direction from the government over the tariff exemption. “We want the exemption to be extended to keep online trading working well, but we’re not sure whether it will happen,” he said. Without the tariff waiver, online trade volumes would sharply decrease, resulting in fewer imports, Park said.
The trading volume in the online spot market increased to 211.47 million liters in April 2013, from just 3.6 million liters in April 2012 when the online market had only recently opened. A total of 188.06 million liters of diesel fuel and 23.41 million liters of gasoline were traded on the online market in April, compared with 1.98 million liters and 1.62 million liters respectively in April 2012, according to KRX. “The sharp rise in trading volume is largely attributable to the tariff exemption,” Park said.
The increased volume comes at a time when the country’s domestic gasoline and gasoil demand remains sluggish. The country consumed 33.23 million barrels of gasoline in the first three months of 2013, up from 32.70 million barrels in the same period last year. It consumed 17.33 million barrels of gasoline in the first quarter, up from 17.18 million barrels the year before.
The country’s overall demand for oil products is slowing. Consumption of oil products in March fell 3.8% year-on-year to 64.20 million barrels, the fourth consecutive monthly decline, according to state-run Korean National Oil Corp.
But gasoil imports in the April-March period jumped to 7.26 million barrels, almost seven times the 1.07 million barrels imported a year earlier. Imports of gasoline resumed in October last year only after the tariff exemption was introduced, importing 542,000 barrels up to March.
A total of 6.40 million barrels of diesel fuel came from Japan during the one-year period to March, accounting for the bulk of South Korea’s total imports of 7.26 million barrels. Gasoil imports from Japan in the period totaled 289,000 barrels, equivalent to about 53.3% of total gasoil imports.
Most of the Japanese gasoil and gasoline were imported without tariff for online trading. “Most of the volumes traded in the online market to date were sourced from Japan,” Park said. Due to geographical proximity, Japanese oil imports cost less than those from other nations, he said.
(May 9, 2013)
