May 15, 2013 / 12:20 PM / in 6 years

UPDATE 1-S.Korea to scrap diesel, petrol import tax break in July

(Adds details, background)

By Meeyoung Cho

SEOUL, May 15 (Reuters) - South Korea said it will scrap a diesel and gasoline import incentive from July as local refiners plan to start trading oil products on the Korea Exchange, a move that could enable them to increase market share.

Diesel and gasoline imported for trade on the online Korea Exchange is exempt from a 3 percent tariff, making it competitive with local supplies.

South Korea’s energy ministry said in a statement on Wednesday this tax benefit would terminate from July and that domestic refiners plan to join the online market from the second half of this year.

Korea Exchange was launched last year in an effort to tame record-high fuel prices, increase transparency and reduce the influence of the four refiners - Hyundai Oilbank, GS Caltex , SK Energy, and S-Oil.

The latest tax move is expected to encourage refineries to shift some diesel from export markets to the domestic market, which could help push up Asian margins on diesel during June and July, the typical months of peak demand from customer Saudi Arabia.

Saudi Arabia’s demand for diesel imports for power generation is expected to increase as temperatures soar from June, and its demand for diesel as a transport fuel could increase during the Muslim festival of Eid, traders said.

Asian diesel margins climbed to a one-month high this week after falling to a more than two-year low late last month, Reuters data showed.

Japan’s diesel exports to the rest of Asia could increase at the same time, however, since South Korea’s independent importers have been buying its diesel to take advantage of the import tariff exemption. But Japan’s diesel is unable to meet specifications for Saudi summer demand.

South Korea’s first-quarter diesel exports rose more than 10 percent on the year as cargoes priced out of the local market were shipped overseas.

Diesel volumes traded on Korea Exchange are now equal to around 10 percent of South Korea’s diesel consumption, and about 1,300 entities participate in the market, the exchange has said.

Combined with other import exemptions, diesel prices when traded online can be as much as 44 Korean won ($0.04) per litre lower, according to Korea Exchange data.

Additional reporting by Jessica Jaganathan in SINGAPORE; editing by Jane Baird

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