China Hits U.S. Oil Products, LPG with Tariffs, But Backs-Off Oil

(August 23, 2018) — China rolled out retaliatory tariffs on an additional $16 billion worth of U.S. imports in early August, including oil products, LPG, and coal in a new list of affected goods, but left off widely expected duties on U.S. crude, writes S&P Global Platts. The Chinese Ministry of Commerce’s latest list imposes 25% tariffs on a swath of energy commodities from Aug. 23, including asphalt shale, oil shale, and tar sand.

But the ministry said the latest tariffs remove a previous reference to U.S. crude in earlier proposals announced in June. Naphtha, propane, and butane all remain on the new list, which also covers waste metals, petrochemical products, and cars. S&P Global Platts notes the latest tit-for-tat escalation in the trade spat between the two countries comes after the U.S. said it would implement a 25% tariff on an additional $16 billion worth of Chinese imports from Aug. 23.

Citing the Washington, D.C.-based research firm ClearView Energy Partners, Platts reports that removing crude from the list may reflect China’s inherent energy security concerns. “Simply put, crude may have been a bluff—and LNG could be too—and energy scarcity may have led China to retreat from its threat posture,” a ClearView official quoted by Platts observes.

At the same time, a 25% tariff on China’s imports of American LPG probably won’t change the picture for U.S. exporters much, observes Bloomberg news. “U.S. spot cargos to China could fall, but the bulk of exports to the Middle Kingdom are locked into long-term [lift or pay] contracts with companies such as China Petroleum and Chemical Corp., which include multimillion-dollar penalty fees for breaking the agreements.” Bloomberg asserts it’s more likely that Chinese firms will honor their contracts, but resell the LPG cargos to other buyers to avoid paying the 25% levy.

Bloomberg elaborates that China can source its LPG from the Middle East, even as it resells U.S. cargos to other countries. China has already reduced its imports of U.S. LPG, particularly because of the less-advantageous price spreads but also because tariffs have been on the radar since spring. “Everyone expected LPGs to be hit with tariffs,” says Bloomberg analyst Daniel McLaughlin. “I suspect cargos will be diverted to other Asian nations—Japan, [South] Korea.”

Observed is that the U.S. exporter Enterprise Products Partners LP (Houston), America’s largest, doesn’t seem phased. In a recent second-quarter earnings conference call the company forecast that the U.S. will need more LPG export capacity, and it is even considering building an offshore port to facilitate more traffic.

(SOURCE: The Weekly Propane Newsletter, August 20, 2018)