Truce or not, US soy and LNG look unappetising for China

TOKYO: China may be girding itself to buy more US gas and soybeans amid easing trade tensions, but the sums just don’t add up right now.

American supplies would be uncompetitive or unneeded when shipped to China, based on current prices, shipping costs and other variables.

So any resumption in purchases by the world’s biggest gas importer and America’s top soy buyer is unlikely to be for economic reasons and may be a political gesture by Beijing to smooth relations with Washington.

President Donald Trump’s claim this week, following a meeting with his counterpart Xi Jinping, that China would boost purchases was welcome news for US farmers and energy executives, who’ve seen their sales to the Asian nation virtually vanish.

Chinese officials have been told to take necessary steps to rekindle trade, though it isn’t clear if its recent import-stifling retaliatory tariffs would be cut.

But China may not have much appetite for any additional gas right now beyond its baseload, long-term contracted volumes as its fuel tanks remain near capacity and amid forecasts for an unseasonably warm winter, according to traders surveyed by Bloomberg.

And the best time of year to sell American soybeans to China has passed as South American harvests approach, according to Cargill Inc, one of the world’s top agricultural commodity traders.

North Asia’s gas buyers, who are well stocked for winter, are awaiting colder weather before increasing spot purchases, traders have told Bloomberg over the past month.

A glut of supply and lower crude oil prices, to which most liquefied natural gas (LNG) shipments are priced, have pushed the benchmark Japan/Korea LNG Marker to the lowest since July, a sign of weakening demand.

And even if China were to seek a short-term supply deal, it would be easier to turn to Australia or Malaysia.

Oil-linked cargoes from those suppliers are currently cheaper than US shipments, which are priced off the Henry Hub marker that’s hovering near a 5-year high, according to Bloomberg calculations.

“High shipping rates, a spike in Henry Hub-sourced LNG prices and a fall in Asian oil-linked benchmarks make it far less attractive to bring in US LNG to China – for now,” said Fauziah Marzuki, a Bloomberg NEF analyst in Singapore.

“Atlantic-basin supply will likely stay in the Atlantic.”