Following China's imposition of retaliatory tariffs on US goods over the weekend, our experts weigh in on the potential impact the move will have on different commodities.
Suresh Sivanandam, senior manager, Asia refining, on oil:
"US crude exports to China have been in the range of 300,000 barrels per day (b/d) in Q1 2018, accounting for slightly above 20% of total crude exports. This shows that China is a significant outlet for US crude exports and the early indications are that the exports would be much higher in Q2 2018 given the lower WTI-Brent differential which made the arbitrage to Asia look more attractive.
"US crude exports to China fit well with the trend of declining Chinese domestic crude production and also a growing refining capacity in China. Even in the medium-term to 2023, we forecast US crude exports to China to increase two-fold from the current levels, on a free trade basis.
"Hence, the imposition of crude tariffs by China will impact the US-China trade and adds a significant downside risk to our base forecast for the medium term. While China could secure the crude from alternative sources, such as West Africa which has a similar quality to US crude, the US would find it hard to find an alternative market that is as big as China."
Nicholas Browne, head of Asia-Pacific gas and LNG, on gas:
"In terms of energy, the list from the Chinese government includes nearly all commodities covered by Chapter 27 of the Harmonized System of customs codes.This chapter covers mineral fuels, mineral oils, bituminous substances, and mineral waxes.
"LNG seems to be clearly excluded from the list of goods that will face tariffs as the list jumps from code 27109900 (waste oils) to 27111200 (liquefied propane), excluding 27111100 (LNG). Natural gas in a gaseous state (27101210) is however included, but of no significance given China cannot import pipeline gas from the US.
"The exclusion of LNG is not surprising for two key reasons. Firstly, LNG demand is growing rapidly in China. Secondly, the US will be the key source of incremental supply growth in 2018 and 2019.
"The success of China's coal-to-gas switching policy in 2017 led to a very tight winter gas market and gas shortages in northern China. LNG played a key role in limiting the extent of shortages and LNG demand grew by a record 12 million tonnes in 2017 to reach 38 million tonnes. US LNG met 1.6 million tonnes or 4% of China's LNG demand in 2017.
"With coal-to-gas switching continuing at a rapid rate, LNG demand growth in 2018 will be at least 10 million tonnes to reach 49 million tonnes. We currently forecast demand will grow an additional 9 million tonnes in 2019 to reach 58 million tonnes. We forecast that US LNG will account for 30% of incremental global LNG supply growth this year and 45% in 2019.
"Tariffs on US LNG would increase costs and potentially limit availability of LNG. CNPC recently signed two long-term deals with Cheniere, one of which starts in 2018. For flexible US volumes, the introduction of tariffs would have posed a significant challenge for Chinese buyers as they seek to meet surging demand. It would also have created logistical headaches for suppliers to optimise their portfolios to ensure they could meet Chinese demand while redirecting US LNG to other markets.
"The trade war between China and US is at a nascent stage with an uncertain extent or duration. However, LNG is clearly seen as an essential good by the Chinese government. Given this, in the event of an escalation, LNG is likely to remain outside the bounds of any additional tariffs."
Shirley Zhang, principal analyst, Asia coal markets, on coal:
"The impact on coal is less significant scale wise. In Q1 2018, China imported 0.4 million tonnes from US, accounting for roughly 2.6% of China's total coal imports and 1.7% of the US' total coal exports. The US' contribution to China's coal imports peaked at 4% in 2012.
"Before the tariff rise, China's import coal tariff for US was at 3-6% while Australia and Indonesia were exempted. Taking into consideration of the higher freight costs, US coal was never a cost competitive supplier into China on a delivered quality adjusted basis, unless there is a major unexpected supply disruption from Australia.
"Having said that, current high coal prices have encouraged more high-cost US supply into the Pacific market amid domestic demand weakness. With China's higher tariff, US coal may have to re-direct the cargoes to elsewhere like India or EMEARC (Europe, Middle East, Africa, Russia and Caspian) in the longer term for a better margin."
Joel Lindahl, VP Olefins Chemicals Research, on chemicals:
"The initial effect on US propane exports would be minimal, as it would take time for China to source back-up propane. The US is the largest propane exporter in the world and is the primary propane growth engine in the world, especially when OPEC curtails oil production.
"Propane prices rose substantially last year when US production growth underwhelmed, requiring the cancellation of multiple US propane export cargoes. Longer term, the US would target European steam cracker and PDH demand while China dominates Middle Eastern cargoes.
"If the tariff goes through, Middle Eastern producers would be the incremental polyethylene supplier to China. Middle Eastern volumes allocated to Europe or Africa would face increasing competition from US material. But if US producers had to target China, US netbacks could fall $200/tonne."