China’s US Decoupling Collapses Trade in Key Petroleum Product

(Bloomberg) -- It’s been just days since China responded to US tariffs with its own set of eye-watering levies, but one corner of the petroleum market is already in crisis as bilateral trade collapses between the two heavyweights.  

The price of propane, a type of liquefied petroleum gas, has plummeted in the US because selling to China, its biggest customer after Japan, is no longer viable. Chinese buyers are scurrying to find alternative sources of the fuel, which is used for heating and plastics, but are getting gouged by traders taking advantage of their distress. 

The two countries should be snug bedfellows in the LPG market. US production has soared thanks to the shale revolution, and China has capitalized by ramping up its plastics-making capacity. Until last week, those plants were feeding an export machine which was heavily dependent on American consumers. That’s all now been trampled underfoot by the rapid escalation in tariffs.  

Chinese propane importers have been frantically trying to offload US cargoes they can no longer afford in exchange for other supplies. But they’ve been offered switches at around $130 a ton, according to traders, which is about four times what they were willing to pay. 

The buyers most affected are the propane dehydrogenation (PDH) plants that turn the raw material into propylene, a building block for plastics. The sector’s already operating on razor-thin margins as the massive buildup in capacity is undermined by China’s slowing economy, which has led to lower run rates and new projects being delayed.

Rapid Growth

The LPG trade from the US to China has grown rapidly in recent years to about $1 billion a month. Around 60% of the country’s imports last year came from America — almost four times as much as No. 2 supplier Abu Dhabi. Moreover, cargoes from the Mideast often mix propane with butane, which is a less suitable feedstock for Chinese plants, according to traders. 

PDH plants have mushroomed along China’s eastern seaboard, lifting capacity to nearly 22 million tons at the end of last year, about triple that of four years ago, according to Rystad Energy AS.

At an import tariff of 125%, plants would have lost $770 on every ton of American propane they processed last week, according to the research firm. But they would have turned a small profit by switching to Middle Eastern cargoes, assuming a more modest $30-a-ton fee for the swap, said Rystad analyst Manish Sejwal.

US exporters, meanwhile, are beginning to secure new buyers in Europe, according to Citigroup Inc. India could be another possibility if prices fall further, Rystad said.

On the Wire

The volume of goods processed by Chinese ports slowed last week for the first time since the Lunar New Year holiday — a trend that will undercut the value of exports going forward if it continues.

China will likely report solid economic growth for the start of 2025, a period before Donald Trump’s tariffs threaten its around 5% growth target without more stimulus.

Chinese President Xi Jinping called on Vietnam to jointly oppose “unilateral bullying” to maintain the stability of global free trade and supply chains, as Beijing aims to strengthen ties in Southeast Asia on the leader’s first overseas trip of the year.

Archer-Daniels-Midland Co., one of the world’s largest crop traders, is shrinking its operations in China as part of a company-wide restructuring effort following a downturn in profits and a bruising accounting scandal.

This Week’s Diary

(All times Beijing unless noted.)

Tuesday, April 15:

• COP30 President Andre Aranha Correa do Lago speaks at event at Tsinghua University in Beijing, 15:00
• Canton Fair in Guangzhou (runs through May 5)

Wednesday, April 16:

• China home prices for March, 09:30
• China industrial output for March, including steel & aluminum; coal, gas & power generation; and crude oil & refining, 10:00
  • Retail sales, fixed assets investment, property investment, residential sales, jobless rate
    • 1Q GDP
    • 1Q pork output and inventory
• CSIA’s weekly polysilicon price assessment
• CCTD’s weekly online briefing on Chinese coal, 15:00
• Aluminum Industry Conference & Expo in Suzhou, Jiangsu, day 1
• New Energy Industry Chain Expo in Suzhou, Jiangsu, day 1

Thursday, April 17:

• CSIA’s weekly solar wafer price assessment
• Aluminum Industry Conference & Expo in Suzhou, Jiangsu, day 2
• New Energy Industry Chain Expo in Suzhou, Jiangsu, day 2
• EARNINGS: Eve Energy

Friday, April 18:

• China’s 2nd batch of March trade data
  • Grains, sugar, cotton, natural rubber, palm oil, pork & beef imports
  • Oil products imports & exports breakdown; LNG & pipeline gas imports
  • Bauxite, steel and aluminum imports; rare-earth product, alumina and copper exports
• China’s March output data for base metals and oil products
• China’s weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30
• Aluminum Industry Conference & Expo in Suzhou, Jiangsu, day 3
• New Energy Industry Chain Expo in Suzhou, Jiangsu, day 3
• EARNINGS: Huayou Cobalt
• Holiday in Hong Kong

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