Impact of China’s 34% retaliatory tariff on energy commodities

In retaliation to US tariffs announced on April 2, China imposed a 34% tariff on all imports from the US, effective from April 10. This tariff will be added on top of existing tariffs on US energy commodities which China implemented on February 10, namely 15% on LNG and coal, and 10% on crude. Both rounds of tariffs will have a limited impact on US crude, LNG, and coal due to low trade volumes overall.

• LNG

China’s combined tariff on US LNG could rise to 49%. Already the previous 15% tariff has depressed US-China flows, and for the first time since June 2022, not a single US LNG cargo discharged in China over the past month. Therefore, the latest Chinese tariff hike will do little to change the status quo regarding US-China LNG flows. Last year, US LNG accounted for only 5.5% of Chinese imports, volumes that China was able to replace in Q1 amid ample LNG availability in Asia-Pacific, a situation recently exacerbated by mild temperatures and elevated inventory levels in Northeast Asia (see here for a deep dive into latest natural gas fundamentals as well as our analysis on China reselling US cargoes to Europe). Despite China shunning US LNG, respective exports reached a monthly record of 9.06 Mt, driven by the ramp-up of the Plaquemines terminal, with Europe emerging as the major buyer of incremental US supply.

• Crude

China’s combined tariff on US crude will amount to 44%. Similar to LNG, US-China flows started to come under pressure from previous tariffs in February before dropping to a 30-month low of 64 kbd in March. Last year, the US supplied only 1.5% of Chinese crude imports (excluding Canadian grades transshipped via the US Gulf Coast), with the majority being comprised of medium-sour barrels. Based on the recent tariff hike, US-China flows could come to a halt in Q2. The global medium-sour market remains tight this year due to mounting US sanction pressure on Iran and Venezuela as well as ample medium-sour spare production capacity in the Middle East. Nevertheless, considering the minor volumes at stake, Chinese refiners such as Sinopec, the largest buyer of US crude, will not struggle to find replacements for grades such as Mars and SGC. This will also be facilitated by the accelerated output hike announced by OPEC+ on April 3, starting in May.

• Coal

China’s overall tariff on US coal could amount to 49%. Only three US Panamax cargoes discharged at Chinese ports last month, pushing Chinese imports of US coal to a 26-month low. Last year, the US accounted for just 2.4% (10.6 Mt) of China’s total coal imports—a figure inflated by unusually hot weather. By contrast, Indonesia, Australia, and Russia collectively supply 90% of China’s seaborne coal imports (primarily thermal coal), while overland shipments from Mongolia provide predominantly metallurgical coal. It should be no problem for these countries to offset minor US volumes, especially when considering that Chinese import demand remains muted as utilities are eyeing domestic supplies (see here as well as our monthly in-depth analysis on thermal and met coal).

Chinese imports of US energy commodities in 2024

Source: Kpler

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