(Bloomberg) -- Commodities were a big casualty of the escalating trade war between the U.S. and China, but are now set to be a major beneficiary of Beijing’s pledge to import more American goods.
U.S. President Donald Trump had threatened to impose tariffs on as much as $150 billion in Chinese imports, including some steel and aluminum products, to punish Beijing for allegedly violating American intellectual property and unfair trade practices. The Asian nation vowed to retaliate with tariffs on everything from soybeans to fruit and wine.
But after two days of talks in Washington, the two countries on Saturday declared an economic truce, putting their tariffs plan on hold. In a joint statement released by the White House, China said it agreed to “meaningful increases in U.S. agriculture and energy exports” with details to be worked out later.
Focus now swings to which U.S. commodities could benefit as China buys more, and which countries stand to lose business in the world’s biggest market for most raw materials.
Soybeans
The oilseed has been one of the major battlegrounds of the trade war and will very likely feature in the truce. China’s planned tariffs on U.S. exports were seen as a politically charged strike at America’s agricultural heartlands, which had supported Trump’s presidency.
China is the world’s biggest importer of soybeans and America’s largest buyer in trade worth $14 billion last year. While about a third of U.S. production goes to the Asian country annually, China last year bought more of the oilseed from Brazil.
China could potentially increase annual U.S. soy imports to more than 40 million to 50 millions metric tons, according to Li Qiang, chief analyst with Shanghai JC Intelligence Co. It purchased almost 33 million tons from the U.S. last year and 50.9 million from Brazil. Buyers have recently been shunning American supplies due to uncertainty over whether the government would follow through on its planned tariffs. Soybeans on the Chicago Board of Trade climbed more than 2 percent on Monday on news of the truce.
Cotton
Cotton represents another major trade flow from the U.S.: exports of raw cotton fetched $5.8 billion last year, government data show. China was the top destination after Vietnam. Futures on the Dalian Commodity Exchange have surged to a four-year high after bad weather damaged crops in Xinjiang, the top producer, potentially putting pressure on China to import more as stockpiles decline. The country kept its 2018 cotton import quota unchanged at 894,000 tons.
Other U.S. agricultural products that could benefit from increased Chinese imports include sorghum and distillers dried grains, according to Li. Beijing last week scrapped an anti-dumping and anti-subsidy probe into purchases of American sorghum, a trade worth almost $1 billion in 2017.
Ethanol
China could also increase its ethanol imports as the government expands its use in vehicles nationwide by 2020, according to Shanghai JC Intelligence. Purchases surged in the first quarter as buyers sought to secure supply ahead of extra tariffs and as expensive domestic corn made imports attractive.
The U.S. accounted for about 86 percent of China’s ethanol imports in the first three months of this year, according to customs data.
LNG
Liquefied natural gas is another sector where China and the U.S. can find common ground. The Asian nation is set to become the world’s largest importer of liquefied natural gas in the next decade, and several proposed U.S. export projects are seeking long-term buyers to finance construction. Bloomberg New Energy Finance forecasts China’s imports growing to 82 million tons a year by 2030, but the country has long term contracts to supply just 42.5 million tons by then, leaving plenty of space for new purchases.
If China were to fill every drop of uncontracted LNG with U.S. gas, that would amount to about $20 billion a year in purchases by 2030. There are already signs of growing cooperation between the two countries. Earlier this year, China National Petroleum Corp. signed a 25-year deal with Cheniere Energy Inc. to buy U.S. gas. China Petrochemical Corp. has signed a joint development agreement with a proposed export plant in Alaska, and China Gas Holdings Ltd. has agreed to purchase 3 million tons of LNG a year from Delfin LNG’s proposed plant in the Gulf of Mexico.
Crude
In the world of crude, the U.S. needs China more than China needs the U.S. The Asian nation is helping drive a surge in exports from the U.S., increasing purchases last year to 224,000 barrels a day, up from just 1,000 in 2015, when Washington lifted restrictions on exports.
For China, the biggest importer of oil in the world, U.S. crude is just a small part of its portfolio, with major suppliers like Saudi Arabia and Russia having the biggest shares. China spent $162.3 billion on crude purchases in 2017, with just $3.16 billion of that going to the U.S.
LPG
There’s a lot of room left for China to increase imports of liquefied petroleum gas, fuel that’s used mainly for cooking, heating and transportation. The Asian nation last year bought 3.56 million tons, or about 113,000 barrels a day, from the U.S., worth $1.86 billion, customs data show. Only the U.A.E. supplied more, sending 6.49 million tons worth $3.19 billion.
Still, China’s imports from the U.S. were far lower than total estimated American LPG exports of about 1 million barrels a day in 2017. With shale output still booming and economic growth in the Asian nation showing little sign of slowing down, trade in products such as propane and butane can potentially be boosted. If that happens, other suppliers such as Saudi Arabia and Qatar may lose out on the prized Chinese market.