* Less than 1 million tonnes being shipped in May-June - refiners
* Shipments resume for May after pause in April - sources
* Premium drops to below $1 a barrel, half of last month
By Jessica Jaganathan
SINGAPORE, May 18 (Reuters) - China has resumed imports of light cycle oil (LCO) after buyers cancelled shipments in April, as a planned Chinese consumption tax has not been announced, four industry sources said this week.
Less than 1 million tonnes of LCO are being shipped from South Korea to China in May and June, compared with a peak of 2 million to 3 million tonnes, said two of the sources, both from South Korean refiners. The lower volumes reflects cautious buyers, they said.
China had planned to impose consumption taxes on oil by-products such as mixed aromatics, light cycle oil and bitumen blend. The tax would close a loophole that allowed Chinese buyers to import light cycle oil, then sell it locally as low-grade diesel, avoiding taxes that would normally be levied on diesel.
The proposed tax was initially expected to be levied in May but no official announcement has been made, increasing uncertainty among buyers, the sources said.
At least two LCO cargoes for late-April loading from South Korea were cancelled last month ahead of the planned tax.
But shipments have resumed for May-loading cargoes, the sources said. They are likely being used for blending into fuel oil instead of being re-sold as diesel, one of the sources said.
Light cycle oil is the residue produced after running fuel oil through a catalytic cracking unit to produce gasoline and diesel.
LCO cargo premiums have dropped by about one-sixth from their peak, which is reducing the incentive for refiners to produce the oil and instead maximize their output of jet fuel and diesel, one of the sources said.
Premiums have also dropped to below $1 a barrel on a free-on-board (FOB) Korea basis for the cargoes, compared with a peak of about $6 a barrel earlier this year and $2 to 3 a barrel in April, the sources added.
“Buyers are still wary as no one knows the status of when the tax will be implemented,” the source said.
Reporting by Jessica Jaganathan; Editing by Christian Schmollinger