It took Chinese liquefied petroleum gas (LPG) importers less than 24-hours to get waivers on tariff Beijing had imposed during the trade war with Washington as China moved swiftly to expedite U.S. shipments.

The exports, which could land as early as April, will be the first after a 19-month lull as Beijing looked to meet its obligations of buying more U.S.

product under the trade deal it signed with Washington and also to ease the burden on LPG buyers. LPG is used as petrochemical feedstock and cooking fuel by the residential and commercial sector.

China opened the registry last week and allowed LPG importers to submit their application on Monday and, surprisingly many companies had already received approval for the tariff waiver on Tuesday, market sources said.

Chinese LPG importers have been disadvantaged for almost two years after the government imposed import tariffs amounting to as much as 26% for propane and 28.5% for butane, which made it uneconomical to buy U.S.-origin cargoes.

At least three propane dehydrogenation (PDH) producers and one petrochemical cracker based in east China have confirmed that they have received the green light, the sources said.

At the same time, a Dongguan-based PDH operator in south China also received the waiver to April delivery cargoes, they added.

The company recently issued a tender to buy 22,000 mt propane for late April arrival and did not exclude U.S. origin cargoes, which they have typically done in the past, as OPIS reported on Monday.

A south China-based importer and wholesaler also received the waiver, according to the sources. It currently has two long-term supply contracts for one cargo per month each, spanning from April to Dec. and Oct. 2019 to June, respectively, that excludes U.S. origin but is priced on the Far East quote basis.

The buyer had in its import tender requested bidders to indicate the amount to be deducted from the selling price if and when the additional import duties/tariffs on U.S. products were lifted by the Chinese government, according to a document seen by IHS Markit OPIS.

A Tianjin-based PDH producer, who has yet to submit their application by press time, was said to have secured April cargo of U.S. origin from a trader on a Saudi CP basis, the market sources said.

The preemptive purchase was made amid expectations that it was almost guaranteed that they would get an approval even though importers can only file planned amount and value on a monthly basis for the following month, they said, adding that the application process was simple and smooth.

China imported 20.5 million mt of LPG in 2019, with a propane to butane ratio of 3:1, a 9% increase compared to 2018, according to data from IHS Markit's Global Trade Atlas (GTA).

It bought 69% of its imports from Middle Eastern countries and 11% from the U.S. in 2018, but the balance shifted drastically towards the Gulf producers with a 76% share versus zero from the U.S. in 2019 when the tariffs were imposed, the GTA data showed.

Saudi Aramco set its Contract Price (CP) at a record level of $565/mt for propane and $590/mt for butane in Jan., highest since Oct. 2018, on the back of strong demand from the Asian petrochemical sector prior to the outbreak of the coronavirus disease 2019 (COVID-19).

The March CP paper swaps traded at a premium to the Far East quotes prior to the Saudi Aramco CP announcement on Sunday. Aramco slashed its March CP to $430/mt and $480/mt for propane and butane, respectively, which was lower than most market expectations, said sources.

Consequently, the April CP swap flipped to a discount of $12/mt to the Far East quotes as of March 2, according to OPIS IHS Markit assessment.

The reversal in differentials for the April cycles reflects the positive sentiment emanating from the quick tariff exclusion process by Beijing, according to market contacts. The Far East quote is typically used to price non-Middle East cargoes.

The opening of U.S. supply will offer LPG buyers some respite as they grapple with COVID-19, which has led to lock downs that just about decimated the food and beverage sector and curbed industrial activities.

The Caixin/Markit Manufacturing Purchasing Managers' Index showed factory activity contracted in February, tumbling to a record low of 40.3. It was at 51.1 in January. PMI readings above 50 indicate expansion, while those below that mark signal contraction.

While a number of PDH plants will be gone for scheduled maintenance in March, it remains to be seen how quickly Chinese demand can recover from the outbreak with many factories expected to get back to reasonable production levels in April.

 

--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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