China to resume US LPG imports as Beijing waives trade-war tariff: Sources

China to resume US LPG imports as Beijing waives trade-war tariff: Sources

Chinese and U.S. flags flutter near The Bund in Shanghai
FILE PHOTO: Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019. REUTERS/Aly Song

SINGAPORE: China has begun buying US liquefied petroleum gas (LPG) again after a hiatus of nearly 20 months as Beijing waived punitive tariffs to boost imports of US goods as part of the Sino-US Phase 1 trade deal, industry sources said.

Importers have rushed to apply for waivers for the 25 per cent tariff to buy the fuel, a by-product from US shale gas production, after Beijing started granting exemptions this month for nearly 700 US goods.

About a dozen firms - including China Gas Holdings, a piped gas distributor and LPG trader, and Oriental Energy , a manufacturer using LPG to make petrochemicals - have been granted the tariff waivers, according to two veteran LPG traders, an investment officer and analysts at IHS Markit.

With the exemptions, US LPG is subject only to a 1 per cent import duty, same as rival supplies from the Middle East.

"US LPG provides us a diversified source of supply to keep our overall import cost low," said Tan Yuwei, an investor relation officer with China Gas, adding that the firm has booked 60,000 tonnes of US fuel for late April arrival.

An official with Oriental Energy confirmed his company won a tariff exemption but declined to comment on any purchases.

The LPG traders declined to be named because they are not authorized to speak with the press.

Yanyu He, IHS Markit's Houston-based senior analyst for natural gas liquids, said he expected Chinese bookings of US cargoes to re-emerge from April, although the sudden crash of oil prices to sub-US$30 a barrel will see US LPG output decline.

China may have booked an estimated five US cargoes totaling 220,000 tonnes so far, said a Beijing-based IHS analyst who also declined to be named as he is not authorized to speak to the media. 

This analyst said a slow rebound in Chinese petrochemical production following the coronavirus outbreak could hold back purchases.

The resumption of US trade is set to weigh on prices of competing cargoes from Qatar and Saudi Arabia.

Benchmark US spot butane prices in Mont Belvieu, Texas, have lost two-thirds of their values over the past month, dropping to their lowest since at least 1990 at US$0.21 per US gallon, primarily tracking the free-fall in oil prices.

That is equivalent to about US$95 per tonne, and compares with April Asian LPG paper at US$150 a tonne.

China was the No 2 buyer of US LPG exports in 2017, with purchases at 3.6 million tonnes, then worth some US$2 billion. Imports began shrinking in late 2018 and nearly dried up last year during the prolonged US-China trade war.

US LPG, typically in 44,000 tonne cargoes and sailing through the Panama Canal, takes about two weeks to get to China.

LPG consists of propane and butane used for heating and making petrochemicals.

Source: Reuters/ec