Petronas Faces New EU Tariff

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Petronas faces new duties of 3.7 percent on base oil exports to the European Union after adjustments to the EUs trade policy caused Malaysia to lose preferential status.

Petronas said it is undeterred by the change and that it plans to continue selling base oil to a large number of customers in the region. It also expressed hopes that its government and the EU will reach a trade agreement next year to again eliminate the duty.

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The change took effect Jan. 1, 2014 as a result of a 2012 reform to EU Regulation 978/2012, a law determining which countries qualify for no tariffs or reduced tariffs on goods imported to the EU. The European Commission made the change in an effort to focus trade benefits on the neediest nations.

Malaysian base oils had enjoyed preferential access to the EU market in the form of reduced import duties. But the EU ended such treatment for goods from 20 countries and territories now classified by the World Bank as high income and upper-middle income.

Malaysia is an upper-middle income country according to the World Bank classification, which means it does not qualify any more for the EUs so-called Generalised Scheme of Preferences under the reformed scheme in place since the beginning of 2014, explained Helene Banner, press officer for EU trade policy.

Despite the new expense, Petronas expects to continue having a strong presence in the EU, claiming its base oils are among the most competitively-priced products available.

Petronas base oils plant in Melaka, Malaysia, produces 340,000 metric tons per year of mostly API Group III base oils, with a large portion of output slated for export to Europe.

Marketing and sales manager Mooreyameen Mohamad expressed confidence that the new tariff would not affect Petronas’ sales volumes into the EU.

The European market is and has always been very important for Group III base oil sales, ours included, so our customers will always come first, and my European colleagues will try to manage the extra costs via other means,” Mohamad told Lube Report Asia last week.

Some analysts believe that the EU has altered its policies towards certain developing countries to encourage their governments to speed up the ratification of free trade agreements with the EU. The FTA negotiations between the EU and Malaysia began at the end of 2010, and an agreement could be signed as early as 2015.

There has been speculation that Petronas would seek to expand its market presence elsewhere to make up for the potential loss of sales in Europe. Specifically, some industry insiders expected Petronas to try to expand its presence in China.

China is an interesting place, and we are always keeping an eye on how we can do more there, Mohamad said. He added, though, that the company considers it too early to divert attention from Europe.

If there’s a chance that we get passed over, then we work harder to keep our customers. But diverting any volumes before we get to that stage would be giving up before the race is over.

Petronas is the only Asian nation producing Group II or III base oils that lost preferential status at the start of the year. A Group II/III plant is being built in Kazakhstan, which also lost preferential status. China and Indonesia are Group II and III-producing nations that retained preferential status because the World Bank classifies them as lower-middle income nations.

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Base Stocks    Malaysia    Region    Regulations    Regulations Specs & Testing    Southeast Asia