China is restarting its buying spree of liquefied petroleum gas (LPG) from the US after a 20-month long hiatus due to the China-US trade war. Chinese importers are now ordering millions of dollars worth of the fuel source from US suppliers after China waived its punitive tariffs as part of the Phase 1 trade deal.
Following the announcement that China would waive the tariffs, a wave of importers have rushed to apply for the removal of the 25 percent tariffs to buy LPG from the US. The US currently has an abundance of the fuel as it is a by-product of its shale gas production.
According to analysts at HIS Markit, several Chinese importers have already been granted the tariff waivers. These companies include LPG trade and distributor China Gas Holdings and petrochemical company Oriental Energy. The waivers will only subject LPG shipped from the US to a 1 percent import duty, similar to the duties imposed on LGPs shipped from US rivals such as the producers in the Middle East.
China Gas, which had already booked 60,000 tons of LPG from the US that is expected to arrive in April, stated that the waiving of the punitive tariffs should give China a diversified supply source during these trying times. Oriental Energy did not immediately reveal the exact volume of LPG it has ordered after receiving the tariff exemption grant.
Industry experts have pointed out that booking of US LPG to China is expected to surge in April as more importers are granted the tariff waivers. However, supply from the US could become limited given the sudden crash of global oil prices, which have already reached the sub-$30 levels.
Analysts at HIS Markit estimate that the five US cargo ships that have already been booked by Chinese importers could total around 220,000 tons of the fuel. The increase in the importation of the production could fuel the country's petrochemical production rebound but the ongoing spread of the coronavirus outbreak may somewhat hold back purchases. LPG is used by China to produce several petrochemical products, while also being used by households for heating purposes.
The resumption of US LPG importation is expected to affect the prices of competing suppliers from the Middle East. Before the China-US trade war, China was the US' second-largest buyer of LPG. In 2017, China purchased an estimated 3.6 million tons worth around $2 billion. Total imports began to shrink in late 2018, with number nearing zero at the height of the trade dispute between two of the world's largest economies.