China likely to exempt US ethane from retaliatory tariffs: industry sources

The Chinese government is likely considering an exemption for around 131 US goods, including ethane, from its 125% retaliatory tariffs, due to significant reliance on the supplier, several industry sources told Platts, part of S&P Global Commodity Insights, on April 24.

The potential move may relieve private ethylene producers who fully rely on US ethane as feedstock, helping them avoid supply chain disruptions amid the escalating trade deficit between the world's top economies. If the 125% tariffs could be exempted, ethane imports, including those from the US, would only attract a 1% duty.

China imported 1.39 million mt of ethane, worth $721.2 million, in the first quarter of 2025, all of which came from the US, according to Chinese customs data, up 12.3% year-over-year.

Amid expectations of the exemption, the share price of Satellite Chemical, China's top consumer of US ethane, jumped 9.99% on April 25, while that of the leading private chemical complex, Wanhua Chemical, rose 2.94%.

Ethane importers told Platts they had not received any government notice on the exemption on April 25. "But it [the exemption] should be true," one of the sources said.

Such statements are usually released by the Ministry of Finance's Tariff Department, which also serves as the Office of the Tariff Commission of the State Council.

The ministry could not be immediately reached for comment by Platts.

According to a list circulated within the industry, 131 US goods across 56 categories, such as electromechanical parts, engines, aircraft, feed, pharmaceuticals and industrial raw materials, were included in the possible tariff exemption.

These goods accounted for nearly 28.6% of China's total imports from the US by value in 2024.

However, US propane was not included in the list.

"There are still some alternatives for US propane that we can source, such as those from the Middle East. But there is no alternative for ethane," a Shandong-based importer said.

China reduced its US propane imports by 31% month over month to 1.02 million mt in March, ahead of the retaliatory tariff announcement. However, it increased Middle Eastern propane imports by 51% to 1.08 million mt over the same period, according to Chinese customs data.

Appeal for tariff exemptions

Beijing announced on April 4 that it would impose an additional 34% retaliatory tariff on all US goods, including ethane. The additional tariff was subsequently escalated to 125% on April 11, with cargoes loaded before April 10 avoiding duties if they arrive by May 13.

Analysts and market sources expect ethane cracking to remain profitable even with a 34% tariff on US feedstock, but a further 91% tariff from China has thwarted such hopes.

Private ethane processors, led by Satellite Chemical and Wanhua Chemical, have been actively appealing to authorities for an exemption, arguing that alternative suppliers are not feasible at scale.

Wanhua recently commissioned the second phase of its 1.2 million mt/year ethane-fed ethylene plant in Yantai, further tightening the industry's dependence on US supplies.

The country's imported ethane-based ethylene capacity, almost all of which is independent, now stands at roughly 4 million mt/year, according to S&P Global Commodity Insights.

China's state-run ethane processors usually rely on their domestically produced feedstock, such as PetroChina's 800,000 mt/year Changqing ethane-to-ethylene plant at its Lanzhou Petrochemical.

Satellite Chemical said previously that it would adopt a tolling trade arrangement to process the supplied ethane tax-free and export ethylene to swap overseas to mitigate the impact of the tariffs.

If the processing trade option is adopted, logistic costs are expected to increase by 3%-5%, though this will not fundamentally affect the company's overall operations for the year, it said in a statement.

Its peers told Platts that processing remained a reasonable option, but finding buyers for the product was challenging as they had concentrated on domestic sales.