China announced on Wednesday retaliatory tariffs on an additional $16bn worth of US imports, including oil products, Liquefied Petroleum Gas and coal in a new list of affected goods but leaving off widely-expected import duties on US crude.
The Chinese Ministry of Commerce’s latest list imposes 25 per cent tariffs on a swathe of energy commodities from August 23 including “asphalt shale, oil shale and tar sand,” according to S&P Global Platts.
But the ministry said the latest tariffs remove a previous reference to US crude in earlier proposals announced on June 16. Naphtha, propane and butane all remain on the new list which also covers waste metals, petrochemical products and cars.
The latest tit-for-tat escalation in the trade war between the two countries comes after the US earlier Wednesday said it would implement a 25 per cent tariff on an additional $16bn worth of Chinese imports from August 23.
US tariffs implemented on July 6 saw China retaliate by imposing a 25 per cent tariff on $34bn worth of US imports of food products, agricultural commodities such as soybean, and motor cars. China’s Ministry of Commerce said then that it has been “forced to fight back.” China has already shortlisted US LNG imports for 25 per cent tariffs in a previous round of retaliatory duties announced on August 3, but this has yet to be implemented.
In addition to energy commodities including road fuels, naphtha and coal, the latest list covers waste metals and cars under the $16bn worth of US products that China will target from August 23.
According to the US Energy Information Administration, the US exported 141,000 b/d of petroleum products to China in May, a 10-month low. The exports averaged 229,000 b/d in 2017, up from 181,000 b/d in 2016. The data shows that the US sent 52,000 b/d of LPG to China in May, an 11-month low. The exports averaged 147,000 b/d in 2017 and 115,000 b/d in 2016.
Expectations of tariffs on US crude and LPG imports have already hit import volumes and trade flows.
China’s crude oil imports from the US fell sharply in July from June, and are expected to drop even further in August.
The US is not a major supplier of LNG to China, representing just under five per cent of total Chinese supply in 2017 and moving up to around seven per cent so far this year.
Citibank predicted China’s rejection of US crude and LNG imports would weaken prices in the near term, including for Atlantic Basin cargoes, but would not ultimately pose a significant challenge to US exports.
“Whether in the long or short run, China’s potential imposition of tariffs or quotas on US exports is a tax on Chinese consumers rather than an obstacle to US exports,” Citi’s global head of commodities Ed Morse said in a report.
“Longer-term seasonal and secular trends see rapidly growing US market share in oil, LNG, and NGLs, come what may,” he added.
China received 14.65 million barrels of US crude in June, which was a historical high, but volumes more than halved to just 6.9 million barrels in July, according to Platts’ vessel tracker cFlow. Arrivals in August are expected to shrink even more to around 6 million barrels.
The drop is reflected in changing trade patterns of oil tankers loaded with US crude headed to Asia and procurement by state-run Unipec, the trading arm of China Petroleum & Chemical Corp or Sinopec, the world’s largest refiner by capacity.
Oil tankers laden with US crude that were initially headed to China appear to be being diverted to other buyers, cFlow data showed.
Unipec had purchased nearly 16 million barrels of light sweet US crudes in June. These cargoes included the WTI Midland, Eagle Ford, Bakken and Domestic Sweet Blend grades, and were expected to be delivered to China over July-August.