Japan Steps Up U.S. LPG Purchases; Fallout from Sino-U.S. Trade Conflict

Reuters reports that Japanese utilities and industrial companies are snapping up U.S. cargos of LPG that are seeking a new home after Chinese buyers started to shun them amid an escalating trade war between Washington and Beijing. Taking in fuel that would otherwise be heading for China means Japanese imports of U.S. LPG are set to stay strong after already hitting record levels earlier this year.

Reuters notes that robust Japanese purchases of LPG underscore how the impact from the festering trade dispute between the U.S. and China is rippling across supply chains around the world. The uptick could also help Tokyo rebuff pressure from U.S. President Donald Trump to cut a multibillion-dollar trade surplus or face rising tariffs itself.

“U.S. LPG is facing difficulties reaching China,” says Seiya Araki, president of Astomos Energy, a major Japanese buyer. “That has helped push large flows of U.S. LPG to Japan and South Korea, and there’s a high chance that the share of U.S.-produced LPG could rise further.” Japanese data released this month shows the country’s imports of LPG from the U.S. jumped about 13% in July from the same month last year to about 460,000 metric tonnes, while ship tracking data indicates that just a single U.S. LPG cargo has left for China since the start of July.

Washington and Beijing have been locked in a tit-for-tat trade battle, with both sides slapping steep tariffs on each other’s goods in a fight that has sparked dire warnings of economic doom and gloom. China announced earlier this month that it would impose additional 25% tariffs on imports of 333 U.S. goods worth $16 billion from Aug. 23, including LPG.

The news service comments that U.S. exports of LPG have surged on the back of the shale boom of the past decade. U.S. exports now compete with supplies from the Middle East. In Japan, the world’s number three importer, U.S. volumes hit an all-time high of 6.09 million metric tonnes in 2017. They marked a monthly record of 738,016 tonnes in April this year. U.S. supplies, which include propane and butane, amounted to about 70% of total imports in May, according to the Japan LP Gas Association.

Reuters recounts that the U.S. has become increasingly price competitive. Taking freight and insurance into account, Japanese government data shows U.S. LPG prices are mostly cheaper than Middle Eastern benchmark Saudi Arabian supplies. At the same time, Trump has already imposed tariffs on Japanese steel and aluminum and is threatening to place duties on auto exports from Japan if its trade with the U.S. isn’t more balanced.

(SOURCE: The Weekly Propane Newsletter, August 27, 2018. Subscribe by clicking Subscriptions tab above.)