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.

In a truce that will last 90 days, the United States will lower its tariffs for imports from China by 30% while Beijing reduces its duties on U.S. products to 10%. The agreement, which was reached after two days of discussions in Geneva last week between the two parties, has brought the trade relationship off the edge it was heading towards.

It does not provide any certainty beyond 90 days and does little to encourage China's energy commodity purchases.

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 crude oil, LNG and coal from the United States.

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

China's response saw it impose 125% tariffs on U.S. products and restrict 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, down from 400,000 bpd, the highest level ever.

The U.S. portion of China's seaborne oil imports was 2.4% in 2024, which 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 is due to arrive in metallurgical coal 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 in the sense that 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 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 of agricultural commodities each year.

At the time of peak imports, the gap was about 50%, even with 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 treated very sceptically.

These are the views of the columnist, an author for.

(source: Reuters)