China's reliance on US exports of LPG could be under threat if significant trade tariffs are introduced, write Frances Goh and Eunice Ng
Concerns are mounting on the Asia-Pacific LPG market following the inauguration of US president Donald Trump on 20 January as participants wait to see whether he follows through on a promise to impose a 60pc import tariff on Chinese goods.
Trump is expected to use trade tariffs as a tool to reinvigorate domestic industrialisation while cutting trade deficits, but to what extent and when is still uncertain. The other uncertainty is how swift and severe Beijing's retaliation will be if significant tariffs on imports of Chinese goods are introduced. The concern then for the Asian LPG market is whether LPG is ensnarled given China's growing dependence on US exports of propane and butane — and increasingly ethane — for its still-expanding petrochemical sector.
A surge in propane feedstock costs for Chinese propylene producers at propane dehydrogenation (PDH) plants in particular could drive up downstream petrochemical prices. Price movements in Chinese domestic polypropylene (PP) futures are closely aligned with delivered propane prices in Asia under the Argus Far East Index. Any significant hike in propane import prices would subsequently drive PP prices higher and potentially curb demand, squeezing PDH margins and potentially leading to rationalisation in an already struggling sector.
Yet Shandong Port's surprise decision to ban Iranian-linked vessels sanctioned by the US earlier this month has been widely viewed as an attempt at appeasement, following on from Washington's strengthening sanction enforcement from the third quarter of last year. The news has caused consternation among market participants bearing in mind 1mn t of the 8.5mn t of LPG that discharged from VLGCs at Shandong, in south China, are thought to have come from Iran, according to Kpler data. Washington added more than 130 vessels to the sanctions list last year, which comprises a total of nine VLGCs, according to shipbroker Fearnleys.
Yet Beijing dismissed suggestions it was making concessions to the US. "China stands firmly against the US' illegal unilateral sanctions and long-arm jurisdiction that have no basis in international law or authorisation by the UN Security Council," China's foreign ministry spokesperson, Guo Jiakun, said after the Shandong Port ban was announced. Most Asian LPG market participants think Beijing will respond aggressively to US tariffs, with reprisals capturing US propane and butane. But many believe Beijing's waivers on tariffs introduced in 2020 will remain in place because of China's dependence on US LPG and the country's current economic malaise.
Hurt locker
The five main US goods imported to China in terms of value in January-November 2024 were electronic integrated circuits at $10.7bn, followed closely by LPG at $10.5bn — $10.1bn for propane and $390mn for butane — and then by soybeans, motor vehicles and jet turbines at $10.1bn, $6.8bn and $6.3bn, respectively, customs data show. The importance of US LPG has made many Chinese importers concerned that it will make Beijing target the product to hurt US export revenue at the cost of impacting its domestic petrochemical sector. China's total LPG imports increased by 11pc to 34.5mn t last year from 31.1mn t in 2023, and by 89pc from 18.2mn t in 2017, Kpler data show. Of this, 17.8mn t came from the US, while 14.4mn t came from the Middle East — the former climbing and latter declining significantly on the year.
The expectation is for a resumed trade war to drive up feedstock costs for PDH operators already struggling with weak margins. China will want to prop up the sector to prevent the economic consequences from plant closures. But the rapid growth of steam cracking capacity and the launch of crude-to-olefins mega-refineries might ease concerns for the government, even giving it the opportunity to reduce its reliance on US propane.
| Chinese imports of US goods by value | $bn |
| Electronic integrated circuits | 10.68 |
| LPG | 10.46 |
| Propane | 10.07 |
| Butane | 0.39 |
| Soya beans | 10.07 |
| Motor vehicles | 6.75 |
| Turbojets, turbopropellers and gas turbines | 6.27 |
| Crude | 5.49 |
| Aircraft and spacecraft | 4.76 |
| Semiconductor manufacturing machines | 4.08 |
| Copper scrap | 3.29 |
| Blood | 3.16 |
| Medical instruments and equipment | 2.66 |
| LNG | 2.38 |
| — Customs | |
