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China to raise tariff on US LNG to 25% but excludes US crude from list

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China to raise tariff on US LNG to 25% but excludes US crude from list

Singapore — China will increase tariffs on US LNG imports to 25% from 10% effective from June 1, the State Council under the Finance Ministry said in a statement late Monday, but it left out US crude imports from its current tariff lists.

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Higher tariffs on LNG will hamper further trade flows between the US and China as upcoming summer peak demand in North Asia could have raised prices enough to offset the previous 10% tariff and create arbitrage to boost US LNG imports into China.

The absence of crude oil on the tariff list also leaves leeway for the Chinese government to maneuver in future trade negotiations.

Podcast: As US-China trade war widens, uncertainty weighs on commodity markets

The hike is part of a wider increase in tariffs on $60 billion of products imported from the US, in response to the US raising tariffs on $200 billion worth of Chinese goods last week, the State Council said.

"The measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community," it said in a statement.

The State Council however did not say how it would respond to the US Trade Representative's statements last week that Washington was preparing to impose tariffs on the $300 billion in Chinese products that were still untaxed.

LNG IMPACT

Chinese end-users have been turning away US-sourced cargoes since the 10% tariff on LNG went into effect in September 2018. Since then, market participants reported several resales or diversions of US-origin cargoes from China to other Northeast Asian countries by the state-owned national oil companies and their suppliers.

"With the hike [from 10% to 25%], the spot market at least, is not expected to change significantly in how people trade around US cargoes," a Chinese end-user said. "Chinese buyers have already been avoiding those cargoes at the start," the source added.

China received four cargoes from the US in 2019 so far, compared to 23 cargoes in the same period in 2018, according to S&P Global Platts' ship tracking software cFlow.

Further out, some Chinese LNG importers said the tariff hike had made them more cautious about US LNG deals and expected more Chinese buyers to back away from US suppliers due to uncertainty about the outcome of US-China trade war.

"It feels more like a long-term issue - killing off term contract deals and supply project investments in the US," a second Chinese end-user said, but declined to be named due to the sensitivity of the issue.

POSSIBLE TRADE EXEMPTIONS

China would also conduct trial exemptions for those products imported from the US on which additional tariffs had been levied in three different batches since last year, the State Council said.

This will include LNG, propane, butane, naphtha, jet fuel, fuel oil, gasoline and gasoil, all of which have faced additional tariffs previously, the State Council said.

The importers and consumers of these US products can apply for exemption via the respective industry associations based on three criteria -- it must be hard to find replacement resources for the US cargoes, the tariffs have caused serious economic damage to the applicants and the tariffs have "major negative structural impacts on related industries," the statement said.

The impact on the industries could include "industrial development, technological progress, employment, environmental protection, etc, or cause serious social consequences," the State Council said.

The first batch of applications for exemption will be accepted from June 3, and the deadline for applications is July 5. The second batch of applications for exemption will be accepted from September 2 and the deadline is October 18, it said. The State Council has yet to provide further details on the exemptions.

-- Eric Yep and Shi Yun Fan, analysis by Daisy Xu and Cindy Liang, newsdesk@spglobal.com

-- Edited by Jonathan Dart, newsdesk@spglobal.com