The Trump administration announced sweeping new tariffs on US imports late Wednesday (April 2), including a 10% tariff on imported goods plus ‘reciprocal’ tariffs on many trade partners. Markets fell sharply Thursday in response. Imported energy products are exempt from the reciprocal tariffs, but the actions raise the risk of retaliation that could put some exports at risk.
We can look to the recent past to understand what retaliatory tariffs can do to the US LPG export market. In August 2018, China imposed a 25% tariff on US propane as part of its retaliation against US tariffs during the US-China trade war in 2018-19. Propane exports to China fell from 200 Mb/d in Oct ’17 to zero by Feb ’18 (see the blue bars in the chart).
The change to trade policy introduced uncertainty and volatility into the market, yet overall LPG exports grew by 183 Mb/d (+20%) from 2017 to 2019. US propane exports increased by 158 Mb/d (+75%) over that same period as other countries like South Korea, Taiwan and Indonesia imported more US propane. As for China, the country met its own demand from a growing number of propane dehydrogenation (PDH) facilities in the Middle East, including in Saudi Arabia, the United Arab Emirates and Qatar.
In the end, the trade war introduced volatility into a fast-growing global market for propane, and East Daley Analytics believes we can expect the same themes if tariffs begin to target energy. The stakes are higher now, as the latest tariffs target many trade partners rather than China alone. The larger concern, reflected in the 4-6% drop in stock indices Thursday, is dampened economic growth. Escalating tariffs can increase transportation and logistics costs and contribute to a higher inflationary environment.
See East Daley’s Propane Supply & Demand Report for more information. Our recent presentation at the OPIS NGL conference is also available now for clients in Energy Data Studio. – Rob Wilson, CFA.
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