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Trade war

Trade war carves new paths for LNG and soybeans

One year on, US exporters see China opportunities lost to Brazil and Australia

China's shift toward Brazilian soybeans may not be easily undone, even if tariffs on imports of the crop from the U.S. are lowered.   © Reuters

TOKYO -- International flows of commodities have been reshaped by the U.S.-China trade war, with Brazil seizing on the opportunity to satisfy Chinese demand for soybeans while Australia does likewise for liquefied natural gas.

A year on from the first volleys of tariffs, the two countries remain at the negotiating table for a deal to end their dispute, with China saying Sunday it will continue to hold of on additional duties on U.S.-made autos to create "a good atmosphere" for talks.

But the changes in commodity procurement may last even after bilateral relations improve.

"Unlike industrial products that need large manufacturing facilities, such as automobiles and semiconductors, it's easy to find new trading partners for resources," said Daisuke Yamamoto, a senior economist with the Sojitz Research Institute in Tokyo. 

Signs of the shift appeared last year at a grain export facility in southern Brazil owned by Japanese trading house Marubeni. Autumn, when the facility's chief export usually switches from soybeans to corn, instead brought a surge in soybean shipments to China, with the crop's total export volume for September-December rising by about 150% on the year.

"Inquiries from China about soybeans kept coming even after autumn," a Marubeni official said.

That summer, China -- the world's biggest soybean importer at 90 million tons per year -- had slapped the U.S. with a 25% duty on the crop in retaliation for Washington's tariffs on Chinese goods. As a result, soy imports from the U.S. shrank by nearly half in 2018 to 16.64 million tons, while those from Brazil rose roughly 30% to about 66 million tons.

Lower demand from China, which had bought about 60% of U.S. soybean exports, has prompted American growers to look elsewhere. As of late March, its European Union-bound exports for the 12 months through August stood at 6.74 million tons -- more than double the previous year. Exports to markets in Asia and Oceania, including Thailand, likewise climbed by nearly 30% on the year.

A ship carrying U.S. liquefied natural gas is seen at an LNG terminal in Poland in June 2017. Shipments of the fuel from the U.S. to China have plunged, and China is importing from such nations as Australia instead. A ship carrying U.S. liquefied natural gas is seen at an LNG terminal in Poland in June 2017. Shipments of the fuel from the U.S. to China have plunged, and China is importing from such nations as Australia instead.   © Reuters

Yet those increases are not expected to cover the fall in China-bound shipments. Total U.S. soybean export volume for the year through August is expected to slide 12% to 51.03 million tons, putting the country further behind Brazil, whose exports are set to climb 4% to 79.5 million tons.

A similar pattern is playing out in energy exports. U.S. LNG export volumes grew by just 53% in 2018 to around 22.76 million tons, down from the previous year's more than threefold growth, according to the U.S. Energy Information Administration.

In December, three months after Beijing slapped a 10% tariff on U.S. LNG, America's China-bound export volume of the fuel tumbled 80% year on year to 80,000 tons. The tally slipped 9% in 2018 to 1.96 million tons after rising sixfold the year before.

U.S. output of LNG is still on the rise thanks to a revolution in shale gas production, and energy-hungry China, which is working to wean itself off coal, had been an eager recipient. With its import volumes of the fuel on track to quadruple by 2040, China is turning increasingly to spot trading with longtime gas exporters, like Australia, to meet demand.

For such producers, Chinese demand presents a lifeline at a time when America's surging exports are eroding their market share. According to Canberra, Australia's total LNG export volume for the year through June is expected to climb 23% to 75.6 million tons.

China is also locking in a stable long-term supply of fuel, with state-run PetroChina last year inking a 22-year deal to receive LNG from Middle Eastern supplier Qatargas.

Trade flows have also been altered by American tariffs imposed under President Donald Trump. U.S. imports of iron and steel fell 11% to 30.57 million tons in 2018, national statistics showed, with exports from China down 14% and those from major producer South Korea dropping nearly 30%. The South was exempted from tariffs, but ran up against American steel import quotas.

Steel products closed off from the U.S. have flowed into Asia instead. South Korean hot-rolled steel coil used in appliances, for instance, has "headed for India," said a trading company official. Export volumes to India rose 10%, helping limit South Korea's overall decline in steel exports to about 4%. China's Japan-bound exports of steel materials have risen year on year since September.

Aluminum producers, including Canada and a number of South American countries, have also turned to Asia after the U.S. tariff hike. Japan's imports of aluminum from Canada and Argentina have jumped by 29% and 15%, respectively.

Canadian suppliers were eager to sell, offering concessions on price, according to one trading firm.

Signs of a possible thaw between Washington and Beijing have emerged as trade talks continue, with Trump agreeing in February to delay a March 1 deadline for new tariffs against China.

But even if normalcy returns, it is unclear whether the flow of goods will revert to its prior pattern. An increased supply of Brazilian soybeans could push down prices, prompting China to procure more of the crop from South America.

Chinese buyers "probably think twice about contracting for U. S-grown [soybeans] even if bilateral relations improve," said Hideki Hattori at Itochu group consulting firm Food Management Support.

Nikkei staff wirters Maiko Sugiyama, Soichi Takano and Ryuta Minamihata in Tokyo contributed to this report. 

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