CGS International Securities (Thailand) (CGSI) stated that in a strategic move, China has announced tariffs on imported crude oil and LNG from the US. The 10% tariff on US crude oil may have a limited impact on domestic refineries, considering US oil comprises a mere 1.8% of total imports, as reported by China Customs in the first half of 2024.
However, concerns arise over the potential repercussions of Trump’s executive order to eliminate Iran’s oil exports, which could significantly affect Chinese teapot refineries. Moreover, the recent US sanctions on Russian energy, another key supplier of crude to China, could further complicate the scenario.
Similarly, China has imposed a 15% tariff on US LNG imports. Despite this, the impact on LNG prices is projected to be restrained since US LNG exports to China only constituted 5% of total exports in 2024, according to the Energy Information Administration. Experts suggest that the situation could escalate if China extends tariffs to ethane and LPG/propane, critical feedstock for Chinese chemical manufacturers. Data from China Customs reveals that LPG and ethane imports from the US constitute 60% and almost 100% of total imports respectively in the first half of 2024.
Furthermore, market analysts caution on potential import tariffs on US polyethylene (PE). Historically, in response to US actions, China increased import taxes on PE and other chemical products in 2018, leading to a displacement of US shipments to ASEAN regions. Recent figures from Commerce Ministry Analysis (CMA) indicate that US PE accounts for 17% of China’s total PE imports in 2024, a significant rise from 5% in 2018. Additional tariffs could exacerbate pressure on the already narrow PE spread, potentially causing operational losses for Asian naphtha crackers, including industry players like The Siam Cement Public Company Limited (SET: SCC) and IRPC Public Company Limited (SET: IRPC).
In the realm of PET, the US enforced a hefty 76% tariff on Chinese products. Although China holds a modest 2% market share in the US PET market in 2024, according to CMA, industry observers anticipate minimal impact on PET spreads in the US should Trump enact more tariffs. As such, the market dynamics in the oil and gas industry are undergoing significant shifts due to these tariff impositions.
For investors eyeing potential opportunities in the sector, PTT Exploration and Production Public Company Limited (SET: PTTEP) and Star Petroleum Refining Public Company Limited (SET: SPRC) emerge as top picks for CGSI, boasting attractive dividend yields of 7.1% and 6.6% respectively for the forecasted year 2025, making them promising choices amid the evolving market landscape.
