US tariffs may weaken appetite for Chinese asphalt

The latest US tariff action against $200bn of Chinese goods is poised to hit imports of asphalt next week, increasing the odds of eroding trade flows between China and the US west coast.

While around 300 commodities were eventually spared from the final list released by the US Trade Representative office on Tuesday, petroleum bitumen, residues, natural bitumen and asphalt, and bituminous mixtures are all implicated in the next tranche of import duties to take effect on 24 September. A 10pc tax will be levied through the end of the year and will rise to 25pc starting 1 January.

China already announced it will retaliate with an equivalent tariff on $60bn worth of US goods, including on asphalt, although this will have limited impact on both markets.

Higher import costs are more likely to have ramifications for the China-US west coast arbitrage, which opened up this summer in response to climbing domestic prices. In August, the average price of asphalt shipped by railcar in the US Rocky Mountains hit $390/st fob, its highest level since late 2014. Reduced export availability from western Canada, unexpected refinery maintenance, and high coker utilization rates all strained US Rockies supply, making Chinese imports a welcome alternative.

The most recent cargo, the 36,681dwt Palanca Miami, loaded from China in August for partial deliveries to Barbers Pt, Hawaii, and Portland, Oregon. In late May, the same tanker left Nanjing before partially offloading in Portland, Oregon. The 12,780dwt San Du Ao lifted in Shanghai last month for unloading in Tacoma, Washington, on 3 September before material was trucked south to terminals in Portland.

Recent import tonnage has eased supply tightness in the region. While only a few firms on the US west coast possess infrastructure capable of supporting marine imports, eliminating China's role as a relief valve could spell difficulty for buyers if similar conditions arise next summer.

But traders in the Asia-Pacific market said arbitrage movements seen earlier will end. Vessel relocations in the summer were responsible for cargoes moving from Asia all the way to the US. No new deals have emerged in recent weeks for cargoes to US markets. Freight costs for such routes on vessels with 10,000dwt capacity or above is typically around $100/t.

It is also unclear how much a weakening Chinese yuan against the dollar – itself an effect of the escalating US-China trade war – could offset the impact of the new tariff for US buyers.