Importers have rushed to apply for waivers for the 25% tariff to buy the fuel, a by-product from U.S. shale gas production, after Beijing started granting exemptions this month for nearly 700 U.S. goods.
About a dozen firms – including China Gas Holdings (0384.HK), a piped gas distributor and LPG trader, and Oriental Energy (002221.SZ), a manufacturer using LPG to make petrochemicals – have been granted the tariff waivers, according to two veteran LPG traders, an investment officer and analysts at IHS Markit.
With the exemptions, U.S. LPG is subject only to a 1% import duty, same as rival supplies from the Middle East.
“U.S. LPG provides us a diversified source of supply to keep our overall import cost low,” said Tan Yuwei, an investor relation officer with China Gas, adding that the firm has booked 60,000 tonnes of U.S. fuel for late April arrival.
An official with Oriental Energy confirmed his company won a tariff exemption but declined to comment on any purchases.
The LPG traders declined to be named because they are not authorized to speak with the press.
Yanyu He, IHS Markit’s Houston-based senior analyst for natural gas liquids, said he expected Chinese bookings of U.S. cargoes to re-emerge from April, although the sudden crash of oil prices to sub-$30 a barrel will see U.S. LPG output decline.
China may have booked an estimated five U.S. cargoes totaling 220,000 tonnes so far, said a Beijing-based IHS analyst who also declined to be named as he is not authorized to speak to the media. This analyst said a slow rebound in Chinese petrochemical production following the coronavirus outbreak could hold back purchases.
The resumption of U.S. trade is set to weigh on prices of competing cargoes from Qatar and Saudi Arabia.
Benchmark U.S. spot butane prices BUT-USG in Mont Belvieu, Texas, have lost two-thirds of their values over the past month, dropping to their lowest since at least 1990 at $0.21 per U.S. gallon, primarily tracking the free-fall in oil prices.
That is equivalent to about $95 per tonne, and compares with April Asian LPG paper at $150 a tonne.
China was the No.2 buyer of U.S. LPG exports in 2017, with purchases at 3.6 million tonnes, then worth some $2 billion. Imports began shrinking in late 2018 and nearly dried up last year during the prolonged U.S.-China trade war.
U.S. LPG, typically in 44,000 tonne cargoes and sailing through the Panama Canal, takes about two weeks to get to China.
LPG consists of propane and butane used for heating and making petrochemicals.