China petchem plants face shutdown as tariffs on US LPG loom
The industry of over 30 propane dehydrogenation (PDH) plants relies heavily on U.S. LPG, or propane, for processing into plastics intermediary propylene.
The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here.
Advertisement · Scroll to continue
Report This Ad
Armaan Ashraf, global head of natural gas liquids at consultancy FGE, said tariffs could force Chinese PDH operators to cut average operating rates by nearly 15 percentage points and curb demand for propane from steam crackers and PDH plants by at least 500,000 metric tons per month.
The tit-for-tat trade war that saw China on Wednesday escalate retaliatory duties on U.S. imports to 84% threatens to put a Chinese PDH sector already struggling under thin margins for two years into what an east China-based executive with a major PDH plant called a "harsh winter".
The executive, declining to be named due to company policy, expects overall PDH plant utilisation rates to drop below half of total industry capacity as early as May.
China's 731,000 bpd-PDH sector operated at nearly 70% of capacity in March, down from a peak of around 85% in 2020, according to industry insiders and FGE, with plants losing an average of 480 yuan ($65.31) per ton in the week of April 6, deepening from the week ago's 384 yuan, LSEG Oil Research analysts said.
Last year, China bought a record 17.3 million tons of U.S. propane, or 550,000 barrels per day, 60% of China's total imports of the gas liquid.
The trade war during President Donald Trump's first term brought China's LPG imports to a halt for nearly two years, but the industry was much smaller then, and operators used cargoes from the Middle East as replacement.
Fuelled by cheap U.S. propane, a by-product of the shale gas boom, PDH plants mushroomed on China's east coast over the past decade, leading to overcapacity amid weakening demand for propylene, said traders and the executive.
Prices of U.S. propane for Asian exports, or the Far East Index assessment, fell nearly 30% to $425 per ton this week as traders factored last Friday's retaliatory tariffs by Beijing. In physical shipments, it's unclear whether U.S. suppliers and Chinese buyers can agree to lower prices to absorb the shock.
While some buyers may be able to re-negotiate with suppliers if contracts permit, others, with term supply deals, may be forced to resell to other Asian buyers.
A growing price gap limits Chinese plants' ability to swap U.S. shipments for rival Middle East barrels that are mostly destined for South Korea and India, traders said.
"The market is still in massive shock and confusion, with buyers and sellers struggling to reach a physical deal. The tariffs have thrown the pricing structure out of the balance," said a veteran trader.
($1 = 7.3493 Chinese yuan renminbi)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
a few seconds ago
- Reuters
Oil prices gain as US inventory withdrawals point to strong demand
TOKYO, Aug 21 (Reuters) - Oil prices gained slightly on Thursday as larger-than-expected declines crude oil and fuel inventories in the U.S., the world's biggest oil user, supported expectations for steady demand. Brent crude futures were up 13 cents, or 0.19%, to $66.97 a barrel at 0055 GMT, after gaining 1.6% in the previous session. U.S. West Texas Intermediate (WTI) crude futures rose 15 cents, or 0.24%, to $62.86, after climbing 1.4% on Wednesday. U.S. crude inventories fell by 6 million barrels last week to 420.7 million barrels, the U.S. Energy Information Administration said on Wednesday, versus analysts' expectations in a Reuters poll for a 1.8 million-barrel draw. , Gasoline stocks dropped by 2.7 million barrels, versus expectations for a 915,000-barrel draw, the EIA said, indicating steady driving demand during the summer travel season. That was also seen in a jump in the four-week average for jet fuel consumption to its highest since 2019. "Crude oil prices rebounded as signs of strong demand in the U.S. boosted sentiment," Daniel Hynes, senior commodity strategist at ANZ, said in a note on Thursday. Still, Hynes cautioned that some "bearish sentiment remains evident as traders continue to monitor negotiations to end Russia's war against Ukraine." Russia said on Wednesday attempts to resolve security issues relating to Ukraine without Moscow's participation were a "road to nowhere," as U.S. and European military planners have begun exploring post-conflict security guarantees for Ukraine. The drawn-out efforts to secure peace in Ukraine mean that Western sanctions on Russian oil supply continue to remain in place. The possibility of further U.S. sanctions and tariffs on Russian oil buyers also hang over the market. Russia, however, remains adamant it will keep providing crude to willing buyers, with Russian diplomats in India saying on Wednesday the country expects to continue supplying oil to India despite warnings from the U.S. U.S. President Donald Trump has announced an additional tariff of 25% on Indian goods from August 27 because of their Russian crude purchases. The European Union has also sanctioned Indian private refiner Nayara Energy, which is backed by Russian oil company Rosneft. Indian refiners initially backed off their Russian buying but company officials at state-run Indian Oil and Bharat Petroleum have bought Russian oil for September and October delivery, resuming purchases after discounts widened.
Reuters
a few seconds ago
- Reuters
China's Bio-Thera Solutions signs licensing deal with Germany's STADA for BAT1806 injection
HONG KONG, Aug 21 (Reuters) - China's Bio-Thera Solutions ( opens new tab on Thursday said it has signed an agreement granting Germany's STADA Arzneimittel commercialisation rights for its BAT1806 injection in the EU, UK, Switzerland, certain Middle East and North Africa regions, and certain members of the Commonwealth of Independent States. Upfront payment and milestone payments will total up to 136 million euros ($158.34 million), including an 8.5 million euro down payment, milestone payments up to 127.5 million euros, and a double-digit percentage of net sales as revenue sharing, the Shanghai-listed firm said in a stock exchange filing, opens new tab. ($1 = 0.8589 euros)
Reuters
an hour ago
- Reuters
Elon Musk must face lawsuit claiming he ran illegal $1 million election lottery
Aug 20 (Reuters) - Elon Musk was ordered on Wednesday by a federal judge to face a lawsuit by voters accusing the world's richest person of defrauding them into signing a petition to support the U.S. Constitution for a chance to win his $1 million-a-day giveaway. U.S. District Judge Robert Pitman in Austin, Texas said Jacqueline McAferty plausibly alleged in her proposed class action that Musk and his political action committee America PAC wrongly induced her to provide personal identifying information as part of the giveaway, late in the 2024 election campaign. Lawyers for Musk and America PAC did not immediately respond to requests for comment. Musk founded America PAC to support Republican Donald Trump's successful 2024 presidential run. McAferty, an Arizona resident, said Musk and America PAC induced voters in seven battleground states to sign his petition by promising that $1 million recipients would be chosen randomly, as in a lottery, though the voters had no real chance to collect. She said voters who signed were also required to provide names, addresses, email addresses and phone numbers. In seeking a dismissal, Musk listed several "red flags" as proof he had not run an illegal lottery. He said these included statements that the $1 million recipients were "selected to earn" the money and expected to become America PAC spokespeople, defeating the idea that the payment was a "prize." But the judge cited other statements suggesting the defendants were "awarding" the $1 million, and the money could be "won." "It is plausible that plaintiff justifiably relied on those statements to believe that defendants were objectively offering her the chance to enter a random lottery--even if that is not what they subjectively intended to do," Pitman wrote. The judge was appointed to the bench by President Barack Obama in 2014. Musk had also rejected the suggestion that petition signers suffered harm by providing contact information. Pitman said an expert in political data brokerage could testify what that information was worth for voters in battleground states. The lawsuit was filed on Election Day, Nov. 5, 2024. A day earlier, a Philadelphia judge refused to end Musk's giveaway, saying that city's top prosecutor failed to show it was an illegal lottery. Musk is a Texas resident, and his electric car company Tesla (TSLA.O), opens new tab is based in Austin. The case is McAferty v Musk et al, U.S. District Court, Western District of Texas, No. 24-01346.
