WEEKLY HIGHLIGHT

Aside from the Section 301 Investigations, the tariff war between US and China initiated by USTR had provided another chaotic market factor in the global shipping market.  At the time of writing, the Trump administration trade deal with China has paused the steepest tariffs on Chinese goods for a 90-day period.  Previously, China has raised its import duties on US goods to 125%, including key oil and gas products.  Compared to crude imports (blue line in the right chart) which have been drastically lowered to only 218,000 b/d in 2024 amid the US-China tension, tariffs on propane and ethane (red line) have led to huge exposure on China’s imports from the US; according to EIA, the volume has increased by 37% per annum over the past five years and could have grown further in 2025 considering new PDH (propane dehydrogenation) plants in China with a combined capacity of 3.06 million tons are scheduled to commence operations in the 1H 2025 (CommoPlast).  The sharp increase of a 125% tariff on these petrochemical feedstocks would price out US propane and ethane in Chinese PDH plants – a wide range of plant shutdowns and reshuffled NGL flows have been captured with China paying premiums for imports from Middle East countries, Australia, Algeria, and even North Sea and Russia, while discounted US cargoes clear to other outlets.

Prior to the pause in tariff hikes and alongside the elevated VLGC freight and challenged petrochemical demand, the propane discount to naphtha had fallen well below the US $50/mt breakeven during April and May, suggesting swing plants to favor naphtha as feedstock.  Propane’s contango pricing structure for winter months even pushed this discount to the negative territory in Dec 2025 and Jan 2026, which also explains the significant jump in VLGC demand and freight levels.  However, this bullish sentiment could inevitably dissipate should the US and China make significant progress on trade talks.  There was also speculation that China was considering exempting tariffs on some US goods including key NGL products.

Figure 1: Propane Discount vs Japan’s Naptha Price                    Figure 2: US-China Imports

Source: CME, US EIA