The recent escalation in the US-China tariff war will have a deep impact on LPG shipping as the US-China LPG trade accounts for 14% of the global LPG seaborne trade and 55% of the global ethane trade. The latest round of tariffs led to a contraction in VLGC rates, dropping 20% in a week, on the US-Japan route, with more softening expected if the tariffs persist.
The US increased the tariff on Chinese imports to a record high 145%, in retaliation, China has announced a 125% tariff on all US import goods including LPG and ethane. China imported more than half of its LPG imports from the US in 2024, while it completely relies on the latter for ethane. The surge since the first US-China tariff war was supported by the expanding PDH sector in China amid cheaper propane supply from the US.
Figure 1: China’s LPG trade
Source: Drewry Maritime Research, TDM
China’s propane pain
The rise in China’s PDH capacity co-existed with the increase in US-China LPG trade. Meanwhile, the boom in US ethane production and attractive cracking margins led to several ethane cracker projects cropping up in China.
The deterioration in trade relations between the two countries will hamper China’s petchem sector, which will be detrimental to the LPG demand. The US will also suffer in the meltdown as it alienates one of its major energy importers and struggles to find alternative markets. China accounts for 30% of US LPG exports, 55% of ethane exports, 5% of LNG and 2% of crude. Among all the commodities exported from the US to China, LPG is the third largest, in terms of revenue.
Figure 2: China’s PDH capacity expansion
* Reduced PDH capacity in 2025 due to demand destruction.
Source: Drewry Maritime Research
The shift to alternative supply sources will mean hefty premiums over Saudi CP prices to attract the limited Middle Eastern supplies, given the sheer quantity of imports currently at risk. This ballooning procurement cost will hurt China’s PDH plants, which have been struggling with weak margins for over two years. The higher feedstock cost and the more worrying – downstream demand destruction due to the expected fall in the export of finished goods amid the US tariffs will create a double whammy for the petchem operators.
Additionally, the Trump administration’s plan to impose fees on Chinese-linked vessels, currently under discussion, of about $1 million to $3 million for each US port call will further drive up import costs for buyers, even if the fee is payable by charterers.
This could trigger a wave of shutdowns in existing plants and delays or cancellations for new plants which will deter LPG demand in the country. Taking US-China 2024 LPG trade as a base, we estimate around 35% of the volumes to be lost YoY if the tariff war prevails. We believe China can increase its imports of Middle East and Canada by 6.5 million tonnes in 2025, but it will be insufficient to completely replace the US volumes the country imported in 2024. China’s increased imports from Middle East will be facilitated by recent OPEC+ output hikes slightly increasing LPG output and reduced demand from India due to the phased rollback of domestic LPG subsidies.
Other sources for LPG remain limited – Russia exported 0.3 million tonnes of LPG to China in 2024 through rail and trucks, which are expected to rise in 2025 but will be insignificant as Russia does not have an LPG terminal in the region for seaborne exports. Currently, Russia is building an LPG terminal at Port Sovetskaya Gavan, which is expected to start in late 2025 after lengthy delays already suffered. China might also turn to Iran for additional LPG supply, but any intensification of US sanctions on Iran could impact this route as well.
Figure 3: Alternative supplies and demand destruction cannot fully replace US supplies
Source: Drewry Maritime Research
Rush for alternative supply
The recent round of tariffs created a rush among Chinese buyers trying to swap their US cargoes (term and spot purchased) with alternatives – the Middle East and Africa. However, the swaps and diversions are coming at a hefty price hike, increasing the premium for Middle Eastern cargoes.
The uncertainty created by this move prompted a rush for VLGCs loading at US terminals, as the tariff came into effect on 10 April, and for vessels discharging in China by 13 May. The higher loadings resulted in a significant decline in US propane inventories in March, leading to a surge in Mt Belvieu propane prices. However, as the loading window neared closure and loadings declined, Mt Belvieu prices plummeted, highlighting China’s role as a key LPG importer for the US.
Figure 4: A surge in VLGC loadings at US export terminals
Source: Drewry AIS
While China’s dependence on low-cost US propane supplies is crucial for running its PDH plants, the country’s retaliation will create problems for US exports. The US terminal expansion plans may face delays, and there could be a pile-up of inventories. This inventory build-up can lead to higher costs and a lack of buyers for the LPG produced, potentially forcing producers to sell at lower prices or limiting production. This situation will result in continued losses for US LPG producers.
Shipping to suffer from demand destruction
As for LPG shipping, the developments will be largely detrimental for the LPG shipping, which is struggling with vessel surplus and has sent waves of uncertainty through the VLGC segment, crashing the VLGC spot rates on all benchmark routes.
We expect a short-term boost in rates as trade patterns change and vessels are redirected. Trump administration will also try to increase their exports to countries currently negotiating with the US under the 90-day pause. This move has already led to increased VLGC fixtures on the US-India route, while other Asian buyers like Japan, South Korea and Indonesia will also absorb some US cargoes.
However, we expect tonne-mile demand to contract in the medium term as China’s petchem demand diminishes. In the long run (assuming the tariffs are here to stay for 2025), the trade war would lead to increased fears of global recession that will further dampen LPG and ethane demand and diminish vessel earnings throughout 2025 and 2026.
As for the ethane trade and the 30 VLEC fleet, it is too early to give a call but more indications will appear by observing Wanhua Chemical’s VLEC Gas Zhujiang, which is due to reach Houston by 19 April. An impact on the US-China ethane trade is likely to lead to some vessels idling or worse, moving to the LPG market.
