Amid the ongoing global trade disputes, US petrochemical manufacturers seem to have landed in the fray, given China’s heavy reliance on US-produced feedstocks. On the other hand, China’s stronghold on rare earth metals exports doesn’t have as much impact. Records from the Energy Information Administration indicate that in 2024, China imported over 565,000 barrels per day of such feedstocks from the US, totaling up to an estimated worth of beyond $4.7 billion.
Interestingly, these figures overshadow the $170 million worth of rare earth metals that the US imported in the previous year, with around 70% of those imports originating from China, as informed by the US Geological Survey. This data is indicative of the interdependent relationship that has evolved between the US and China, a relationship strengthened by increasing trade ties over preceding decades.
China, a dominant player in the refinement of many industry-critical metals, also has a significant demand for specialty chemicals, largely supplied by the US. Its dependency on naphtha, a key component used in the production of numerous base chemicals, is notable. These base chemicals are further processed and ultimately used in common products, ranging from electronic devices to clothing.
However, the economic dynamics often favor the switch from naphtha to more affordable propane in some production plants. However, this switch is not feasible for Propane Dehydrogenation (PDH) plants, which can’t process alternatives such as naphtha. Interestingly, the US supplied more than half of China’s total propane imports in 2024.
American producers have targeted China to leverage the soaring demand for their feedstocks, the market value of which has increased almost fourfold since 2020. Furthermore, projections suggest that China will account for nearly half of the global additions to mixed-feed ethylene and propylene production capacity over the next four years.
Trade relations between the two countries may, however, face strain. This follows the introduction of new tariffs implemented by the administration in April, which were met with China levying its own tariffs on US imports. Notably impacted were feedstocks such as propane and ethane, hit with an overwhelming 125% tariff.
As a result, the financial viability of importing US feedstocks into China has been practically nullified. Finding substitute sources for propane could prove challenging or costly, especially considering that most of the supplies from Middle Eastern producers are designated for India, South Korea, and Japan. While potential for rerouting exists, Middle Eastern suppliers might take advantage of the lack of other options for the Chinese PDH plants to set premium prices.
Current conditions have significantly impacted Chinese PDH operators, as noted by the difficulties faced by Hengli Petrochemical, as a result of years of diminishing profit margins. Given this context, several operators may decide to temporarily halt their operations.
Amid these conditions, China expedited the lifting of tariffs on US ethane as trade negotiations resumed. However, while China’s interest in US ethane seems to persist, there may be restrictions imposed by US authorities. Enterprise Products Partners, the largest exporter of petrochemical feedstocks in the US, announced receiving a notice from the Bureau of Industry and Security within the Department of Commerce, which refused licenses to export ethane to China.
The denial of the export licenses to China was based on the premises that such transfers could pose a ‘military end use’ risk in China. A similar notification was also received by Energy Transfer. This move could have far-reaching implications given that almost all of China’s ethane imports are sourced from the US.
Even though China’s capacity to process naphtha and propane significantly exceeds its ethane cracking capacity, the restrictions on imports from the US will considerably impact their operations. The plants impacted most notably are the Lianyungang and Tianjin facilities, owned by corporations such as Satellite Chemical, Sinopec, and INEOS.
The recent administrative changes are set to affect other key players too. Singapore-based producer, SP Chemicals, which relies heavily on feedstocks from Enterprise Products Partners, is likely to require new plans in light of these developments.