<div id="readability-page-1"><div><div><div>Key points:<ul><li>China’s tax revamp in focus as traders brace for margin squeeze</li><li>Buyers emerge in spot markets for precautionary import</li><li>State refiners to be hit the hardest as they are the key suppliers - analysts</li></ul></div>By Sam Li and Mohi NarayanChinese importers of naphtha could boost stocks in the first quarter of 2026 ahead of an imminent consumption tax on the petrochemical feedstock that will raise costs for suppliers, traders and analysts said.The proposed 2,105 yuan ($302) per ton levy would apply to naphtha sold domestically, according to Chinese consultancies GL Consulting and FGENexant.The tax, aimed at plugging a tax loophole and boosting state revenue, could deepen margin pressure on long-struggling petrochemical producers and exacerbate cash flow strains amid weak demand.Local tax authorities told naphtha suppliers in December that domestic sales of the feedstock would be subjected to consumption tax and associated surcharges from the first quarter of 2026, consultancies GL Consulting and FGENexant said in separate notes. These taxes, which were previously waived, would apply to naphtha transactions between refineries and end-users.China's tax bureau has yet to send an official notice, the consultancies said.China's tax bureau did not respond to a Reuters request for comment.TAXES TO RAISE COSTS&#34;This step will hit petrochemical margins,&#34; Armaan Ashraf, director of natural gas liquids and Asia oils at consultancy FGENexant said.&#34;It is aimed at plugging a loophole in the policy where some producers sought exemption from tax on naphtha being used as (gasoline) blendstock instead of ethylene or aromatics production.&#34;While sellers can seek tax rebates, there is a longer processing period of three to six months for domestic supply compared with imported cargoes, they said, which will tighten companies' liquidity and increase their financial costs.Also, sellers of domestic naphtha have to pay an additional 12% social security tax surcharge that is not refundable, which could make imports more profitable, a state oil official said. The official declined to be named as they were not authorised to speak to the media.STATE REFINERS MOST AFFECTEDZhaojun Bian, an analyst at Chinese consultancy JLC, said state-owned refiners would be most affected by the taxes as they are the dominant suppliers.The official and FGENexant's Ashraf expect importers to buy more naphtha in the first quarter as the taxes may reduce demand for domestic supply in the initial weeks of implementation.Meanwhile, Chinese naphtha importers, including CNOOC, Sinopec's trading arm Unipec, have been seeking additional spot supplies at premiums between $1 and $4 per ton to Japan quotes for second-half February delivery, market participants said, adding that the buying was likely precautionary ahead of policy change.CNOOC and Sinopec did not respond to a Reuters request for immediate comment.According to Kpler shiptracking data, CNOOC has purchased nearly 221,000 metric tons (about 2 million barrels) of naphtha in January to date, up 12.6% from a year earlier.($1 = 6.9634 Chinese yuan)</div></div></div>

China's naphtha imports are expected to rise in early 2026 as traders prepare for a new consumption tax of 2,105 yuan ($302) per ton, which will increase costs for domestic suppliers. This tax, aimed at closing loopholes and boosting state revenue, is anticipated to pressure margins for petrochemical producers, particularly state-owned refiners. Analysts predict that importers will seek additional naphtha supplies in anticipation of reduced domestic demand due to the tax. CNOOC has already increased its naphtha purchases significantly this January compared to last year.

Reuters

Guotai CSI Subdivision Chemical Industry Theme ETF

Guotai CSI Oil & Gas Industry ETF

ChinaAMC CSI Petrochemical Industry ETF

PETROCHINA

CHK OIL

E Fund CSI Petrochemical Industry ETF

Penghua CSI Subdivision Chemical Industry Theme ETF

CNOOC

Hwabao WP CSI Subdivision Chemical Industry Theme ETF

Bosera CSI Oil & Gas Resources Index ETF

Sinopec Corp.

Yinhua CSI Oil & Gas Resources ETF

SINOPEC CORP

China's naphtha imports to rise ahead of tax revamp, traders say