Adds details throughout
China will reduce import tariffs on hundreds of US products, including crude, as part of the phase-one trade deal agreed in Washington last month.
The cuts will apply to tariffs on around $75bn of US imports that were imposed on 1 September last year, China's finance ministry said. The 5pc tariffs on around 800 products, including crude, will be cut to 2.5pc, while tariffs on more than 900 other products will be reduced from 10pc to 5pc.
The changes will be implemented on 14 February, when the phase-one US-China trade deal that was agreed in Washington last month takes effect. The measures are proportional to previously announced US plans to reduce the rate on products covered by the September 2019 round of the trade war to 7.5pc from 15pc, which also take effect in mid-February.
The finance ministry announcement helped send crude futures higher in Asian trading, amid a rebound in regional equity markets. The front-month March WTI contract was up by 91¢/bl or 1.8pc from yesterday's close to $51.66/bl at 4.30pm Singapore time (8.30am GMT), while the April Ice Brent contract had risen by 67¢/bl to $55.95/bl.
Tariffs on some petrochemical imports will also be cut, while the rate on US butane has been reduced by a slight 2.5pc to 28.5pc. But most energy and commodity products, including LNG, are subject to earlier rounds of tariffs and not affected by today's announcement.
The planned tariff cut is the first concrete step taken by the Chinese government towards meeting its commitments under the trade deal. The agreement did not include any pledge by China to remove tariffs, but instead committed Beijing to buying a huge amount of US energy products: $18.5bn of additional energy imports in the first year after the agreement comes into effect, and $33.9bn in the following year, from a 2017 baseline of $8.4bn. That suggests a total import target of around $27bn in 2020, rising to $42bn in 2021.
Those targets will be difficult to reach while tariffs remain in place, many market participants have said. And even if tariffs are removed, China would have to significantly step up its energy imports from the US, which were worth just $3.5bn in January-November 2019. Chinese imports of mainly light, sweet US crude may have to hit 800,000 b/d this year to help Beijing reach the targets, Argus Consulting Services estimates.
It is unclear how much of a difference the 2.5pc cut to crude tariffs will make in practice. The price of US crude delivered to northeast Asia has already fallen over the last month because of a drop in long-haul freight rates. Light, sweet WTI crude for May delivery is selling at premiums of around $6/bl to Dubai on a delivered basis to northeast Asia, comparable to prices for Russian light, sour Sokol or light, sour Abu Dhabi Murban crude. The strength of demand, rather than the tariff cut, will determine buying, Chinese oil industry participants said.
But China's demand outlook has changed drastically since the phase-one deal was signed, as the coronavirus outbreak has slashed economic activity. The outbreak could cut crude demand in China and nearby regions by 3mn b/d this month, according to US bank Citi's energy strategist for commodities research Eric Lee. BP puts the potential impact on global demand growth, much of which is driven by China, at 300,000-500,000 b/d this year.
The outbreak may provide Beijing with a pretext for not fulfilling its massive import requirement. The agreement allows a party to delay implementation in case of "a natural disaster or other unforeseeable event outside the control of the parties".
China has not invoked that clause. The government said today it hopes to work with the US towards the elimination of all tariffs, but said future adjustments depend on the development of US-China economic and trade relations.
