China's Petrochemical Reliance on U.S. Outweighs Rare Earth Trade
- China imports substantial volumes of petrochemical feedstocks from the US, far exceeding the value of rare earth metals the US imports from China, indicating a mutual dependence between the two nations.
- Tariffs and export restrictions imposed during the trade war, particularly on feedstocks like propane and ethane, threaten to disrupt these established trade flows and impact industries on both sides.
- China's petrochemical plants, especially those reliant on US propane and ethane, face potential shutdowns or increased costs due to difficulties in finding alternative supplies, highlighting the vulnerability of global supply chains to trade disputes.
US petrochemical producers may have found themselves on the front line of global trade wars, BNEF reports, with China’s dependence on the US for feedstocks (see "Chinese Plastics Factories Face Mass Closure As US Ethane Supply Evaporates") blunting the impact of its dominations of exports of rare earth metals.
China imported more than 565,000 barrels per day of petrochemical feedstocks from the US in 2024 according to the Energy Information Administration, with a value of over $4.7 billion. That dwarfed the $170 million of rare earths the US imported last year, about 70% of which came from China, according to the US Geological Survey.
The figures show the dependence the US and China have developed on each other by ever tightening trade links over the past few decades. While China has a tight grip on refining many metals crucial for industry, it also takes in niche chemicals from the US that are difficult to buy elsewhere.
China leans on naphtha to produce most base chemicals, which are processed further to end up in everyday items like electronics and clothing. However, some plants can switch to cheaper propane when the economics make sense, which they do regularly. Propane dehydrogenation plants however can’t process alternatives like naphtha. The US accounted for over half of all China’s propane imports in 2024.
US producers have looked to China to buy their ballooning volumes of feedstock, the market value of which has almost quadrupled since 2020. China accounts for almost half of all new mixed-feed ethylene and propylene production capacity set to come online globally over the next four years, based on data compiled by BloombergNEF.
A forced divorce
The honeymoon period may be about to end. Following the implementation of tariffs by President Donald Trump’s administration in April, China retaliated with its own on US imports — including a 125% tariff on feedstocks like propane and ethane. The duty effectively killed the economics of importing US feedstocks.
Alternative sources of propane may be hard or expensive to come by, with producers in the Middle East sending most of their supplies to India, South Korea and Japan. While some rerouting could take place, Middle Eastern players could use the lack of alternatives for China’s propane dehydrogenation plants to charge a premium. China’s propane dehydrogenation operators, like Hengli Petrochemical, have already suffered from weak margins over the past years. Many may opt to shut their operations temporarily.
A messy settlement
China moved quickly to remove tariffs on US ethane as trade talks commenced. However, while China seems willing to buy US ethane, the US administration may no longer allow it. Enterprise Products Partners — the largest US-based exporter of petrochemical feedstocks — received a notice on Wednesday from the Bureau of Industry and Security at the US Department of Commerce, denying licenses to export ethane to China on the basis that such flows “pose an unacceptable risk of use in or diversion to a ‘military end use’ in China.” Energy Transfer received a similar communication.
China’s ethane cracking capacity is dwarfed by its capacity to process naphtha and propane, but almost all of its ethane imports come from the US. The restrictions will have a significant impact on the Lianyungang and Tianjin plants, owned by Satellite Chemical, Sinopec and INEOS. SP Chemicals, a Singapore-based producer, sources most of its feedstock from Enterprise Products Partners.
As the trade war continues, it appears commodities may lead the confrontation, with players on both sides set to feel the pain.
By Zerohedge.com
China’s Rare Earths Weapon Could Kill Europe’s Auto Industry
- China’s new rare earth export restrictions are throttling global supply chains, posing a direct threat to Europe’s auto industry and its mandated EV rollout.
- Automakers warn of looming shutdowns due to complex and slow licensing requirements for rare earth magnets.
- The crisis exposes dangerous overdependence on China, sparking renewed calls in the EU and U.S. to build independent rare earth supply chains.
China earlier this year introduced restrictions on its exports of rare earths. The move marked a new stage in the US- China trade spat, when the two sides no longer tried to out-tariff each other but took to more concrete steps. The problem is, the restrictions don’t just apply to U.S. companies. And they may well deliver the fatal blow to Europe’s struggling auto industry.
China controls 90% of the world’s rare earths processing capacity. It is the indisputable, if not exactly celebrated in the West, master of the rare earths industry. And now, it is using this position to make a point to trade partners that have gone above and beyond to restrict Chinese exports to their own countries and regions—essentially the same thing that Washington does when it uses the dominance of the dollar to sanction governments it doesn’t see eye to eye with.
Rare earths are used in a perhaps surprisingly wide variety of products. More specifically, it’s rare-earth magnets that are troubling carmakers on both sides of the ocean. “Without reliable access to these elements and magnets, automotive suppliers will be unable to produce critical automotive components, including automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lights, motors, power steering, and cameras,” the Alliance for Automotive Innovation, an industry body, wrote in a letter addressed to the Trump administration in early May.
The letter, cited by Reuters in a recent report on the rare earths restrictions, is one of what looks like a cry for help that is only going to get louder. It was signed by auto industry leaders including Toyota, Volkswagen, and General Motors, which thanked the administration for trying to resolve the issue. If they didn’t, the carmakers said, it would be only a matter of time before car factories started shutting down.
The same is happening in Europe, and it’s worse—because with Trump, U.S. carmakers no longer have to worry about EVs. With the current European parliament and the Commission, local carmakers do have to worry about EVs, a lot. Because EVs feature greater amounts of those rare earths than internal combustion engine cars. And European carmakers have been mandated with the production and sale of certain minimum numbers of these EVs over the next three years.
“I informed my Chinese counterpart about the alarming situation in the EU car industry — the rare earth and permanent magnets are essential for industrial production… this is extremely disruptive for industry,” the European Union’s trade commissioner, Maros Sefcovic, said this week, as quoted by the Financial Times. He added that the “Carmakers are warning of huge production difficulties in a short period of time.”
The clock, in other words, is ticking and China does not really seem in a hurry to stop it. The restrictions that Beijing implemented in mid-April are not literal—or direct. They are in the form of a new licensing regime for anyone who wants to buy rare earth magnets from Chinese producers. To do that, the prospective buyer needs to apply for a license, provide a substantial amount of information, and wait. As a Bosch spokesperson described it, the application process was “complex and time-consuming, partly due to the need to collect and provide a lot of information.”
Because of this complexity, only a few car parts suppliers have been granted such licenses, making the car companies’ freak-out only a matter of time, really. But this is coming at a really bad time for European carmakers, despite the substantial rise in EV sales. They are still to turn in a solid profit on their electric cars and they are supposed to be making ever more of these—which means a lot more rare earths.
Things are not that swell in the United States, either, after President Donald Trump accused the Chinese of violating a deal the two earlier agreed, on the temporary relaxation of trade warfare, including tariffs and other trade restrictions—only to be slapped back with the accusation that he did that first, by restricting semiconductor exports.
Things are not looking good for the car industry right now but there is, as always, a silver lining. It consists in the fact that the world is entirely dependent on a single source of rare earths and this is not a sustainable or secure state of affairs. There has been a lot of talk in both Europe and the United States about building their own supply chains in such critical materials but action has not really been forthcoming. Even if it was, building a supply chain from scratch takes many years—just ask China. Yet the rare earths drama may boost Europe’s resolve to actually start working on that supply chain, however long it takes to build it. Import dependence can be fatal.
By Irina Slav for Oilprice.com
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