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    Home»Business»Chinese plastics buyers resist switch back to US propane despite pause in trade war
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    Chinese plastics buyers resist switch back to US propane despite pause in trade war

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    [SINGAPORE] Chinese plastics factories left without US raw material when trade relations collapsed earlier this year are holding back from returning to many of those suppliers despite a pause in hostilities, underscoring the difficulty in restoring commercial ties between the world’s two largest economies.

    Beijing’s retaliation to US President Donald Trump’s so-called reciprocal tariffs effectively made American energy sales to China unviable, including the propane used to make plastics. Last year, before the new administration took the helm, almost 60 per cent of Chinese imports of the liquefied petroleum gas (LPG) came from the US.

    Buyers won a reprieve earlier this month after duties were dramatically scaled back for 90 days, but they remain wary of resuming purchases in case the tariff war flares up again, traders said.

    Chinese propane dehydrogenation (PDH) units that turn the gas into building blocks for plastics were still securing cargoes from Canada and the Arab Gulf as at last week, said the traders, who asked not to be identified discussing commercially sensitive matters.

    As more and more buyers in the world’s largest plastics industry become comfortable with the replacement supplies, deals are being concluded at a narrower premium to benchmark prices, they said. That could indicate a willingness among sellers to capture Chinese business for the longer term.

    Last week, a Chinese buyer bought an Arab Gulf cargo of propane at a premium of US$30 a tonne above the Saudi contract price for July, the traders said. That compares to as much as US$70 earlier in the month, when the frantic rush for alternatives was at its peak. The most recently announced Saudi benchmark was set in April at about US$600 a tonne.

    Buyers also continue to scoop up LPG shipments from the Arab Gulf comprising propane and butane, albeit at a discount last week of at least US$50 per tonne, they said. The addition of butane makes the cargoes less attractive to PDH units.

    After factoring in the current tariff of 10 per cent, margins for a Chinese PDH running US propane “are not lucrative” and stand at around US$20 a tonne, said Samantha Hartke, head of market analysis for the Americas at Vortexa, a cargo-tracking and analytics firm.

    “Volumes aren’t going to move” from America to China, unless the price of propane falls in the US, or the price of substitute supplies arriving in East Asia rises, she said. BLOOMBERG

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