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12 Oct

In China, forthcoming levy of resources tax on crude oil, natural gas, coking coal and rare earths offset the positive sentiment from the purchase of state bank shares by China’s sovereign wealth fund (Central Huijin).  China will rollout national wide resource tax from November 1st with the aim of shifting profits from companies to government in poor and resource rich provinces as well as providing incentives for companies to fully utilise existing mines.  Chinese coal names were under pressure after the news.  However in our view, coking coal is a scarce type of coal in China, it should be easy to pass the increased tax to downstream users.  Another implication is that rising domestic price could encourage imports.  However, as RMB20/t is only 1-2% of coking coal prices, we believe demand impact should be relatively limited.

China also featured in the modest downgrade to oil demand growth in the OPEC Oil Market Report published yesterday. According to OPEC, there are three factors that could negatively impact Chinese oil demand growth: (1) China has removed incentives that have pushed new car registrations up for the past few years; (2) Higher retail petroleum prices slightly suppressed oil demand, mainly transport fuel, in the past three months; and (3) the mandatory blend of biofuels has reduced gasoline consumption slightly.

OPEC and the IEA believe China’s oil demand should grow by 5% in 2012, or by 0.5mmb/d, slightly below the historic trend, that would put 2012 demand growth closer to 0.6mmb/d- a figure more in line with IEA’s view last month.

Read the IEA’s latest report “Energy for All: Financing access for the poor

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