America's Wells, Mines and Farms Targeted by China Trade Offer

(Bloomberg) -- American crude drillers, coal miners and farmers are set to be among the beneficiaries of the Trump Administration’s trade pressure on China.

China has offered to boost purchases of American goods by about $25 billion this year, showing particular willingness to step up imports of crude oil, coal and farm products, according to people briefed on trade talks between the two countries. The Chinese offer comes days after U.S. Commerce Secretary Wilbur Ross visited Beijing for talks over how to reduce China’s goods-trade surplus and diffuse an escalating trade war.

The offer underscores how commodities have shifted from being seen as a potential casualty of the trade conflict to a possible beneficiary of Beijing’s pledge to import more American goods. U.S. exports to China last year totaled $130 billion while Chinese imports to the U.S. totaled $506 billion. That left a U.S. deficit of more than $375 billion.

Here is a closer look at the commodities that may be affected by trade talks:

Crude

China is already helping drive a surge in U.S. crude exports, increasing purchases last year to 224,000 barrels a day, up from just 1,000 in 2015, when Washington lifted restrictions on exports.

America's Wells, Mines and Farms Targeted by China Trade Offer

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.

Sinopec, the Chinese state-owned firm that’s the world’s largest refiner, has already begun boosting U.S. purchases. Its trading arm charted three of the largest class of oil tankers to load U.S. crude in May and as many as seven in June, according to people familiar with the deals.

Coal

China is the largest consumer and producer of coal in the world, and if it’s serious about importing more of America’s coal, Appalachia is the region to watch. U.S. Census data shows the vast majority of U.S. coal exports to China went through Norfolk, Virginia, and Baltimore last year.

America's Wells, Mines and Farms Targeted by China Trade Offer

China was already said to be considering a plan to buy more American coal, specifically from West Virginia. Murray Energy Corp., Arch Coal Inc., Contura Energy Inc., Blackhawk Mining LLC and Ramaco Resources Inc. all stand to gain from increased Chinese purchases from the state, according to Clarksons Platou Securities analyst Jeremy Sussman. Murray Energy’s chief executive officer, Bob Murray, happens to be an outspoken advocate of Trump, his administration and all it has done to bolster coal’s prospects in America.

China’s coal purchases from the U.S could triple in value this year to about $1.3 billion, according to Michelle Leung, an analyst at Bloomberg Intelligence.

Soybeans

The oilseed has been one of the major battlegrounds of the trade war and will very likely feature in any 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 top soybean importer 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.

America's Wells, Mines and Farms Targeted by China Trade Offer

China could potentially increase annual U.S. soy imports to more than 40 million to 50 millions metric tons, Shanghai JC Intelligence Co. said last month. It purchased almost 33 million tons from the U.S. last year and 50.9 million from Brazil. Buyers had been shunning American supplies due to uncertainty over whether the government would follow through on its planned tariffs.

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. Chinese futures have eased from a four-year high last week after the country’s cotton association said the government will issue more import quotas to meet demand. It didn’t specify the volume to be issued on top of the annual low-tariff-rate quota of 894,000 tons.

America's Wells, Mines and Farms Targeted by China Trade Offer

Other U.S. agricultural products that could benefit from increased Chinese imports include sorghum and distillers dried grains, according to Shanghai JC Intelligence Co. Beijing last month 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.

America's Wells, Mines and Farms Targeted by China Trade Offer

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 LNG importer 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.

America's Wells, Mines and Farms Targeted by China Trade Offer

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.

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.

America's Wells, Mines and Farms Targeted by China Trade Offer

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.

To contact Bloomberg News staff for this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net

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With assistance from Editorial Board