US oil wells, farms and mines to benefit from trade pressure on China
Singapore — American crude drillers, coal miners and farmers are set to be among the beneficiaries of the Trump Administration’s trade pressure on China.
China has offered to boost purchases of American goods by about $25bn this year, showing particular willingness to step up imports of crude oil, coal and farm products, according to people briefed on trade talks between the two countries. The Chinese offer comes days after US commerce secretary Wilbur Ross visited Beijing for talks over how to reduce China’s goods-trade surplus and diffuse an escalating trade war.
The offer underscores how commodities have shifted from being seen as a potential casualty of the trade conflict to a possible beneficiary of Beijing’s pledge to import more American goods. US exports to China in 2017 totalled $130bn while Chinese imports to the US totalled $506bn. That left a US deficit of more than $375bn.
Here is a closer look at the commodities that may be affected by trade talks:
China is already helping drive a surge in US crude exports, increasing purchases in 2017 to 224,000 barrels a day, up from just 1,000 in 2015, when Washington lifted restrictions on exports.
For China, the biggest importer of oil in the world, US crude is just a small part of its portfolio, with major suppliers like Saudi Arabia and Russia having the biggest shares. China spent $162.3bn on crude purchases in 2017, with just $3.16bn of that going to the US.
Sinopec, the Chinese state-owned firm that has the world’s largest refiner, has already begun boosting US purchases. Its trading arm charted three of the largest class of oil tankers to load US crude in May and as many as seven in June, according to people familiar with the deals.
China is the largest consumer and producer of coal in the world, and if it is serious about importing more of America’s coal, Appalachia is the region to watch. US Census data shows the vast majority of US coal exports to China went through Norfolk, Virginia and Baltimore in 2017.
China was already said to be considering a plan to buy more American coal, specifically from West Virginia. Murray Energy, Arch Coal, Contura Energy, Blackhawk Mining and Ramaco Resources all stand to gain from increased Chinese purchases from the state, according to Clarksons Platou Securities analyst Jeremy Sussman. Murray Energy CEO Bob Murray happens to be an outspoken advocate of Trump, his administration and all it has done to bolster coal’s prospects in America.
China’s coal purchases from the US could triple in value in 2018 to about $1.3bn, according to Michelle Leung, an analyst at Bloomberg Intelligence.
The oilseed has been one of the major battlegrounds of the trade war and will very likely feature in any truce. China’s planned tariffs on US exports were seen as a politically charged strike at America’s agricultural heartlands, which had supported Trump’s presidency.
China is the world’s top soybean importer and America’s largest buyer in trade worth $14bn in 2017. While about a third of US production goes to the Asian country annually, in 2017 China bought more of the oilseed from Brazil.
China could potentially increase annual US soy imports to more than 40-million to 50-millions tonnes, Shanghai JC Intelligence said in May. It purchased almost 33-million tonnes from the US in 2017 and 50.9-million from Brazil. Buyers had been shunning American supplies due to uncertainty over whether the government would follow through on its planned tariffs.
Cotton represents another major trade flow from the US: exports of raw cotton fetched $5.8bn in 2017, government data shows. China was the top destination after Vietnam. Chinese futures have eased from a four-year high last week after the country’s cotton association said the government would issue more import quotas to meet demand. It did not specify the volume to be issued on top of the annual low-tariff-rate quota of 894,000 tonnes.
Other US agricultural products that could benefit from increased Chinese imports include sorghum and distillers dried grains, according to Shanghai JC Intelligence. In May, Beijing scrapped an anti-dumping and anti-subsidy probe into purchases of American sorghum, a trade worth almost $1bn in 2017.
China could also increase its ethanol imports as the government expands its use in vehicles nationwide by 2020, according to Shanghai JC Intelligence. Purchases surged in the first quarter as buyers sought to secure supply ahead of extra tariffs and as expensive domestic corn made imports attractive.
The US accounted for about 86% of China’s ethanol imports in the first three months of 2018, according to customs data.
• Liquefied natural gas
Liquefied natural gas (LNG) is another sector where China and the US can find common ground. The Asian nation is set to become the world’s largest LNG importer in the next decade, and several proposed US export projects are seeking long-term buyers to finance construction. Bloomberg New Energy Finance forecasts China’s imports growing to 82-million tonnes a year by 2030, but the country has long-term contracts to supply just 42.5-million tonnes by then, leaving plenty of space for new purchases.
If China were to fill every drop of uncontracted LNG with US gas, that would amount to about $20bn a year in purchases by 2030. There are already signs of growing co-operation between the two countries. Earlier this year, China National Petroleum signed a 25-year deal with Cheniere Energy to buy US gas. China Petrochemical has signed a joint development agreement with a proposed export plant in Alaska, and China Gas Holdings has agreed to purchase 3-million tonnes of LNG a year from Delfin LNG’s proposed plant in the Gulf of Mexico.
• Liquefied petroleum gas
There is a lot of room left for China to increase imports of liquefied petroleum gas (LPG), fuel that’s used mainly for cooking, heating and transportation. The Asian nation last year bought 3.56-million tonnes, or about 113,000 barrels a day, from the US, worth $1.86bn, customs data show. Only the United Arab Emirates (UAE) supplied more, sending 6.49-million tonnes worth $3.19bn.
Still, China’s imports from the US were far lower than total estimated American LPG exports of about 1-million barrels a day in 2017. With shale output still booming and economic growth in the Asian nation showing little sign of slowing down, trade in products such as propane and butane can potentially be boosted. If that happens, other suppliers such as Saudi Arabia and Qatar may lose out on the prized Chinese market.