Chinese PDH plants cut April runs amid tariffs, despite gains in US feedstock inflows

China's LPG imports from the US are expected to rebound significantly in April from March's 15-month low, ahead of the implementation of retaliatory tariffs on the US, although propane dehydrogenation plants continue to reduce utilization rates due to deep losses, industry sources and analysts told Platts, part of S&P Global Commodity Insights, on April 25.

Data from S&P Global Commodities at Sea showed that US LPG deliveries, comprising propane and butane, to China jumped 36.4% to 1.5 million mt this month as of April 25, up from 1.1 million mt in March.

"Some of the US cargoes initially destined to other Asian countries have also been diverted to China ahead of the May 13 deadline [of retaliatory tariffs implementation], but for sure the volume will decline after that," a China-based market source said.

"US LPG cargoes are running to China to meet the deadline. Arrivals after the deadline have to be processed under a tolling trade arrangement or swap with resources from other countries," a procurement manager with a private PDH plant said.

Beijing announced on April 4 that it would impose an additional 34% retaliatory tariff on all US goods, including propane. This tariff was escalated to 125% on April 11, and cargoes loaded before April 10 would avoid duties if they arrived by May 13.

Platts reported on April 25 that the government is likely to exempt around 131 US goods, including ethane, from the 125% retaliatory tariffs. However, US propane and butane were not on the possible exemption list.

"Amid the tariffs, either tolling trade or cargo swaps will add a cost burden, further deepening our losses," the manager said.

The tolling trade arrangement involves processing supplied US propane tax-free and exporting propylene to swap overseas, mitigating the impact of the tariffs. This move will increase logistics costs, while finding buyers for the product remains challenging as the plants have focused on domestic sales, market sources and analysts said.

Additionally, the contract price is rising on top of the premium for China to swap cargoes, hurting cracking margins, regardless of whether they can source sufficient supplies to compensate for the shortfall of US cargoes, they added.

"China remains key to this regional [Asia] import narrative, projected to import nearly 3.3 million mt [of LPG] in April 2025, indicating an increase of about 14% on a monthly basis and 6% annually," analysts with Commodity Insights said in the latest CAS report. They added that US LPG captured about 40% of China's LPG imports in April.

Utilization cuts

Among the US LPG users in China, PDH plants suffer the most.

Data from local information provider JLC showed that they reduced their utilization rates to 60.85% in the week of April 18-24, down 3.6 percentage points from the previous week and the monthly average of 72% in March.

"Their utilization rates will likely fall further in view of the rising costs for imported US propene," a JLC analyst said.

JLC data showed that average theoretical losses for converting propane to propylene ballooned to Yuan 435 ($59.6)/mt in the week of April 18-24 -- a devastating 1,661% worsening from the previous week.

This continues an unbroken streak of negative margins that began in June 2023, with losses already reaching Yuan 88/mt ($12.1/mt) in March before the announcement of retaliatory tariffs.

The JLC survey covers 32 PDH plants, representing 21.88 million mt/year of propylene production capacity.

According to market sources, stand-alone PDH plants without downstream integration are bearing the brunt of the impact, with several having already suspended operations entirely.

"Some integrated facilities with propylene derivative units are managing to stay afloat by offsetting upstream losses through downstream sales," the JLC analyst said.

In light of the increased tariffs on LPG imports from the US, some PDH plants have been exploring alternative supply sources from other regions.

Among these efforts, China's Wanhua Chemical has recently strengthened its propane supply from Kuwait by signing a joint-venture contract with Kuwait Petroleum Corp.'s Petrochemical Industries Co. on April 25.

KPC will acquire a 25% stake in Wanhua Chemical's 750,000-mt/year PDH plant in Yantai, Shandong province, a Wanhua Chemical official told Platts.

The cooperation will help Wanhua Chemical's PDH plant secure propane supplies from Kuwait, the official said.