Russell: Trade truce will not revive China's energy imports from the US

Markets have welcomed the move by China and the United States to negotiate and reduce tariffs, but this will not do much to restore trade in energy commodities.

For a period of 90 days, the truce will see the United States lowering its tariffs on imported goods from China to 30 percent while Beijing lowers its duties on U.S. products to 10 percent.

The agreement, which was reached after two days of talks between the two parties in Geneva last week, has brought the trade relationship off the cliff that it was heading towards.

It does not provide any certainty beyond 90 days and does not encourage China to buy U.S. energy products again.

Most likely, U.S. importers will rush to purchase as many Chinese manufactured products as possible under the 30% lower tariff within the next 90-day period in an effort to replenish their stock.

It is unlikely that China will buy U.S. crude, LNG and coal.

Imports have ceased since U.S. president Donald Trump began his global trade war, with an emphasis on China. China was subjected to tariffs as high as 145% up until Monday's announcement.

China retaliated by imposing tariffs of 125% on U.S. products and restricting exports of certain rare earth minerals.

The tariffs that Trump imposed on China were a disaster for the energy imports from the United States, but they disappeared almost immediately after Beijing imposed an initial 10% tariff and 15% tariff on LNG and coal, as its initial response to Trump's initial moves.

Even with the 10% tariff, U.S. coal, crude oil and LNG will not be competitive in China for the next 90-days.

According to Kpler commodity analysts, no U.S. crude oil is expected to arrive in Chinese ports in May. Only three cargoes were unloaded in April.

In 2024, China will import about 242,000 barrels of oil per day from the United States, compared to 400,000 barrels per days in 2023. This was the highest year ever.

The U.S. portion of China's seaborne oil imports in 2024 was approximately 2.4%. This means that the world's biggest oil importer could source cargoes with relative ease from other suppliers.

COAL and LNG

Imports of 4,31 million metric tonnes represented about 5.5% in total arrivals.

Kpler shows that China has stopped importing U.S. Liquefied Natural Gas (LNG) since February.

China's coal imports from the United States have also fallen sharply. Kpler shows that only one cargo of metallurgical coke is due to arrive in China in May. However, this cargo may be diverted elsewhere before it arrives.

In 2024, China will buy 10.78 million tons (roughly 75% metallurgical coal), which is the fuel of higher quality used to produce steel.

The U.S. imports of metallurgical coal accounted for about 13% of China's total seaborne imports.

China will likely be able to replace U.S. coal with cargoes of Australia's metallurgical coal, but it could come at a higher price, as steel mills would have to divert some Australian coal from other buyers, such as India and Japan.

The tariff de-escalation will not be enough to restart China’s imports from the United States of energy commodities. However, they are likely to be once again a major negotiation point in the expected 90 day talks.

Any deal between China, the Trump administration and other countries will likely include an agreement by Beijing to increase imports of U.S. coal, LNG and crude oil.

It's important to note that the agreement between Trump and China reached during his first term has been a massive failure insofar China did not buy the amount of U.S. commodities for energy it had promised.

According to the Phase 1 agreement signed in January 2020, China agreed that it would buy energy above and beyond the $9.1 billion base of U.S. imported goods in 2017. The additional $18.5 billion will be split between 2020 and 2021. It is also expected to purchase $33.9 billion worth of agricultural commodities each year.

At the time of peak imports, the gap was about 50%. This is even higher for LNG and coal.

The COVID-19 Pandemic has ended all chances that China will increase its energy imports to the United States.

The lesson here is that any future agreement between Trump and Beijing which promises a massive rise in China's energy imports from the U.S. should be viewed with considerable skepticism.

These are the views of a columnist who writes for.

(source: Reuters)