Asia Naphtha Rallies Ahead of China Consumption Tax

The Far East naphtha crack has risen to multi-year highs, breaking into positive territory, as a plan by China to introduce a consumption tax on domestic sales of naphtha, spurred demand.

Delivered Japan Naphtha prices for physical cargoes rose to $592, gaining $56.375 from the end of December, the highest since September 2025. The buying triggered a recent rally in the naphtha crack peaked at $2.438/BBL on January 8, 2026 — the strongest for the crack since a spike back in March to April 2022 when the Russia-Ukraine conflict began. Positive naphtha cracks are rare this early in the calendar year, they have remained consistently negative throughout January for the last 3 years.

China Tax Boosts Demand for Imports

The 12% consumption tax which works under a “tax first and refund later” regime, was first announced late in December 2025, and will be levied on domestic sales to level the playing field between domestic refiners and importers who already operate under a similar tax regime. It’s hoped the unified tax policy will stop the leakage of naphtha, meant for petrochemical production, into gasoline blending or trading, while also encouraging closures of older, inefficient naphtha cracking units.

The tax, which is levied on sellers, is often passed down to buyers who will then have to wait for sellers to receive a refund before being compensated. But the longer timeline associated with refunds for buying domestic naphtha, compared to receiving refunds for imports, has spurred smaller Chinese naphtha buyers, with less cash liquidity, to favor imported cargoes.

Total estimated January light naphtha import will hit 670,800 t, above both 12-month and 24-month seasonal average of 313,300t and 355,700 t, data from oil analytics firm Vortexa showed.

Structural Weakness Persists

The current strength in naphtha prices could be sustained in the short term, with Taiwan’s state-controlled petrochemical producer CPC planning to return of the No.4 steam cracker in Linyuan early this year.

But beyond the current rally, the longer-term outlook for the region’s naphtha market remains bearish as overcapacity and muted demand force decommissioning of naphtha-fed cracker capacity in the region.

South Korean companies aim to reduce the combined output from their naphtha cracking centers by up to 25 percent, or 3.7mn t nationwide. Japan’s petrochemical companies are also planning to optimise production, planning to permanently shut the Mizushima naphtha-fedethylene cracker in Okayama by 2030–2031. The availability of cheaper alternative feedstocks such as ethane will also cap naphtha prices, with newer crackers having the flexibility to switch part of their capacity to other more competitive feedstocks.