Singapore — The trade war between the US and China escalated on Saturday with Chinathreatening an additional 25% tariff on $50 billion worth of US goods,including energy and agricultural products, in response to PresidentDonald Trump's decision to place similar tariffs on the same annual valueof Chinese product imports.
Among the $50 billion worth of US goods, the additional tariff on a total$34 billion worth of US agricultural products, cars and marine productsare due to come into effect on July 6, according to an announcement bythe Customs Tariff Commission of the State Council.
Additional duties on the remaining $16 billion of US goods, includingcrude oil, LPG, gasoline, naphtha, fuel oil and natural gas, will beannounced at a later date. But LNG, demand for which is rising in China, was not on the list.
The latest tariff threat between the two biggest economies comes lessthan a month after Beijing and Washington on May 19 inked an agreement toput the brakes on their trade dispute after China agreed to buy more USgoods, key among them being LNG and crude oil.
US tariffs and China's retaliatory rhetoric have emerged as a big riskfor commodity demand and prices in 2018, alongside a slowdown in theChinese economy and geopolitical uncertainty.
In this Factbox, S&P Global Platts takes a look at the existing energyand agricultural trade between the two nations and the impact of thetariff threat.
CRUDE OIL
**Crude oil is expected to see the biggest impact as Chinese buyers, bothstate-owned and private, have been ramping up US crude imports givencompetitive pricing and improving logistics.
**China's crude oil imports are exempt from tariffs currently.
**China has been the largest Asian buyer of US crude. China's crudeimports from the US in Q1 rose to 3.89 million mt, or 316,770 b/d, from443,000 mt a year earlier, and its market share rose to 3.5% from 0.4%over the same period.
**China accounted for 23% of total US crude exports of 1.67 million b/din March, according to data from the Energy Information Administration.
**China's crude oil bill from the US was the largest among all energycommodities at $1.98 billion in Q1.
**Most of China's current crude imports from the US are medium sourgrades such as Mars and Southern Green Canyon. But light sweet crudessuch as WTI, Bryan Mound Sour, and even shale oil from Eagle Ford havejoined the flow.
**Chinese state-owned trading company Unipec will be the hardest hitshould Beijing impose a 25% tariff. The company has bought 16 millionbarrels of US crude for June loading. The barrels are expected toarrive in China over July-August.
**S&P Global Platts calculations show WTI averaged a $1.83/b discount toNorth Sea Forties on a delivered basis into China in May, and a 74cents/b discount to ADNOC's Murban, indicating the competitiveness ofUS crude for China. LPG
**LPG is expected to face the second biggest impact as US suppliesaccounted for 22.4% of China's total propane imports and 6.4% of butaneimports in Q1.
**Propane was the only energy commodity in Beijing's first tariff threatlist to the US on April 6. Trading sources had said then that theyexpected Middle East LPG to replace US supply once the additionaltariff was implemented.
**Propane and butane currently carry an import tariff of 1%.
**China does not regulate the import of propane and butane, hence mostimporters are independent companies with terminals in the south andeast. Imported LPG is used for cooking, industrial burning and asfeedstock in petrochemical plants, including propane dehydrogenationunits.
**Oriental Energy, which runs two PDH plants with a total propaneprocessing capacity of around 1.5 million mt/year in eastern China, isthe biggest importer of US propane. The company typically buys abouttwo VLGCs of propane every month from the US.
**Yantai Wanhua, another major PDH plant in the eastern Shandongprovince, also has a term contract for US propane, which would amountto around 220,000-260,000 mt in 2018.
NAPHTHA AND FUEL OIL
**China is an occasional importer of US naphtha. In Q1, US was thefifth-largest naphtha supplier to China with shipments of 75,294 mt.The volume accounted for only 4.5% of China's total imports in theperiod, according to data from the General Administration of Customs.
**Fuel oil currently carries an import tariff of 1%, but naphtha isexempt from duties.
**Beijing regulates naphtha imports and only state-owned oil companiesand a handful of independent ones are allowed to crack importednaphtha.
**The US has not been a typical fuel oil supplier to China, but USstraight-run fuel oil has recently attracted the interest of Chineseindependent refiners because of its competitive pricing.
GASOLINE, GASOIL AND JET FUEL
**China is self-sufficient in these oil products so the imposition ofadditional tariffs will have no impact.
**Gasoline and gasoil carry an import tariff of 1%, but jet fuel isexempt from tariffs.
**Among the three oil products, only gasoil was imported from the US inQ1 at 61 mt, customs data showed. The small volume suggests that thefuel was bunkered in the US as marine diesel by China-flagged vesselsfor their voyage back home.
**Meanwhile, China exported 441,955 mt jet fuel to the US in Q1, andChinese exporters have been looking for opportunities to export morerefined products to the US.
NATURAL GAS AND LNG
**Much to the surprise of many, China included US natural gas on the listof items for higher import tariffs, but LNG was exempt. Natural gasfalls under the Harmonized System code of 27112100, while LNG carriesan HS Code of 27111100. The LNG HS code was not on the list, clearlyindicating that Beijing did not plan to impose the 25% tariff on US LNGimports.
**China imports no natural gas from the US, but is on track to become thelargest buyer of US LNG this year.
**China has imported nearly 1.25 million mt of LNG from the US in 2018 todate -- versus 1.61 million mt in all of 2017 -- only behind Mexico andSouth Korea, according to data from S&P Global Platts Analytics.
AGRICULTURE
**China's tariffs on US ethanol imports would block an estimated 20million gal/month of shipments, dealing a blow to US producers' exportambitions and make China's own E10 target unreachable, according toPlatts Analytics. It would likely be impossible for China to meet itstarget to blend 10% ethanol into nationwide gasoline supplies by 2020,Bruce Pickover, Platts Analytics' senior director for global biofuels,said. China currently blends about 2-2.5%.
**China has been the main buyer of US soybeans so far in the 2017-2018marketing year at 28.674 million mt, which represents 55.7% of thetotal US exports, according to data from the Department of Agriculture.
**China's threat of tariffs on US soybean has pushed up exports as buyerstry to acquire cargoes before the duties come into effect.
