China Cranks Up U.S. Commodity Pressures in Tariff Battle

(Bloomberg) -- China took aim at U.S. exporters of liquefied natural gas, biodiesel and rare-earth metals as the trade war between the nations escalates.

Beijing announced Monday that it will increase tariffs on liquefied natural gas to 25% from 10% as of June 1, in retaliation for the Trump administration raising duties on Chinese goods. Biodiesel and rare earths metals will also see a higher tariff at the start of next month. U.S. crude oil exports continue to be excluded from tariff actions.

China was the biggest buyer of U.S. soybeans and crude oil as recently as last year, before Trump fired his first trade salvo to force policy changes by Beijing. Since then, American farmers, oil producers and gas exporters have seen their shipments to the world’s biggest commodity consumer dry up.

Today’s action aims at several different commodities, but may have limited effect since China has mostly been shopping elsewhere for key goods in recent months. A listing of where the tariffs are now:

Gas

A fatter tariff on U.S. LNG may have limited immediate impact since Beijing’s 10% duty in September dried up most of the trade.

China has only imported four cargoes of American gas so far in 2019, compared with 19 over the same period a year ago, according to Bloomberg analysis of vessel tracking data. The loss of U.S. market share comes as China’s overall LNG imports rose 21% in the first four months of the year, the most-recent customs data show.

Beyond the increased cost for U.S. supplies, the deeper impact from the trade battle has been to discourage Chinese buyers from cementing long-term deals or taking equity stakes in U.S. export projects, which require billions of dollars of financing and decades of commitment.

China National Petroleum Corp. is the only Chinese firm with a long-term off-take agreement from a U.S. project. A multi-decade deal between Cheniere Energy Inc. and Sinopec has been expected to be signed if the trade war is resolved, Bloomberg reported in March.

Oil

Even though China has avoided slapping a tariff on oil from the U.S -- currently the word’s largest producer -- it has been wary of American cargoes.

The world’s top oil buyer only imported 1.64 million barrels of American crude in the six months to March, with four of those months seeing no shipments at all. That was a sharp drop from the 60.5 million barrels in the preceding six months. U.S. Census Bureau data shows that shipments have edged up in recent months, but are still far below last year’s level.

The plunge in China’s imports came after Beijing threatened in June to impose levies on American oil. Even after it was removed from the tariff list in August -- a sign that the U.S. had become a supplier too big to ignore -- Chinese buyers continued to shun American cargoes due to fear tariffs might still be imposed.

Unipec, the trading arm of Chinese refining giant Sinopec, has avoided bringing American crude all the way home, though it has taken U.S. shipments to sell to third parties. Optimism among Chinese refiners recovered in April on expectations that Washington and Beijing were nearing a trade deal, prompting a freer flow of American oil.

Agriculture

Soybean futures extended declines to a 10-year low, dropping below $8 a bushel, as prospects for a thaw in trade relations looked further away.

Click here for a story on how the tariffs on biofuel have shifted trade flows

A tariff on biodiesel will increase to 25% from 10%, although shipments to China currently are minimal.

Soybean imports from the U.S., which was once China’s top agricultural trading partner, shriveled to almost nothing last year after the world’s biggest buyer imposed 25% retaliatory tariffs and turned to supply from Latin America, particularly Brazil.

This year started on a more positive note after China committed to restart some purchases of soy from the U.S. to sweeten trade negotiations. The breakdown in trade talks also made it more likely that some purchases of U.S. goods such as soy and pork might be canceled instead of shipped, according to St. Louis-based independent analyst Ken Morrison. China has purchased about 7.4 million metric tons of U.S. soybeans that have not yet shipped to the Asian country, according to U.S. Department of Agriculture data.

It might be tough to reverse the current trade trend if China gets used to life without U.S. soybeans. Even if a deal is reached “there may have been a structural shift in soybean buyer-seller relation” and “it’s not a given that Chinese purchases of U.S. soybeans will return to historical levels,” Oversea-Chinese Banking Corp. said in a note last month.

Metals

Gold rebounded as the China news weighed on equities and the dollar. “Keener risk aversion in the marketplace generally works in favor of the safe-haven metals markets,’’ Jim Wyckoff, senior analyst at Kitco Metals, said in an emailed note.

China raised tariffs to 25 percent from 10 percent on American imports of rare earths, an esoteric group of materials used in everything from electric cars to high-tech military equipment. That may hurt sales from the Mountain Pass facility in California, the only operating rare earths mine in the U.S.

MP Materials exports almost all of the 3,000 to 4,000 metric tons of rare earth concentrate produced from Mountain Pass to China.

“It is accurate to call this a targeted, unilateral tariff on the only U.S. rare earths producer,” James Litinsky, chief executive officer of JHL Capital Group LLC, the majority owner of the Mountain Pass consortium, said in a telephone interview. “Raising it to 25 percent is essentially a targeted, unilateral tariff on us.”

The rare earths trade between the world’s top two economies is largely one-way, with the U.S. reliant on China for about 80 percent of its supply, according to the U.S. Geological Survey. The Asian nation’s control of rare earths has long been flagged as a risk for advanced manufacturers in developed nations. Countries, including the U.S., took China to the World Trade Organization earlier this decade to force the nation to ease export restriction.

©2019 Bloomberg L.P.