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Trade Agreement Positive for Tankers

The tanker market is among the key beneficiaries of the recent US-China Phase 1 trade agreement. However, other markets could benefit as well. In its latest weekly report, shipbroker Gibson said that “after nearly two years of trade tensions, the US and China have finally signed the long-awaited phase one trade deal, helping to ease economic fears and boosting market confidence. The Trump government claims an enormous win as well as a political victory, being able to make progress where previous administrations have failed. The centrepiece of the trade agreement is the pledge by China to purchase an additional $200 billion worth of US goods and services over the next two years above the 2017 baseline. Commitments include $52.4 billion in additional energy purchases, $32 billion more in agricultural products, $78 billion in manufacturing purchases and $38 billion in services. Furthermore, the deal also addresses some disputes over intellectual property and includes commitments from China not to manipulate its currency. In return, the US will reduce tariffs on Chinese imports that have been in place since September 2019, from 15% to 7.5%. The deal also allowed China to avoid additional taxes on $160 billion of its exports that were due to be implemented last month”.

According to Gibson, “the agreement involves an eight-charter document with a preamble. However, despite its length, the text of the accord somewhat lacks clarity to determine how it will work in practice, while it is also unclear whether China interpret the agreement differently to the US. China’s vice premier, who signed the deal, said Chinese businesses will buy American goods and services “based on the market conditions in China”, suggesting that commitments made are perhaps not as ironclad as advertised”.

The shipbroker added that “for the tanker markets, the most critical part is the pledge made by China to step up purchases of US oil, gas and coal. According to Reuters, the promised $52.4 billion will be broken down into $18.5 billion in 2020 and $33.9 billion in 2021. There is scope for big increases in crude trade as China’s appetite for crude keeps rising and US crude exports continue to surge. In theory, if China is to buy an extra 420,000 b/d of US crude this year and a further 775,000 b/d in 2021, this would cover about 50% of the pledged energy purchase (at a WTI price of $60/bbl). If such gains are seen, this would offer a strong boost to long haul trade. However, if increases in bilateral crude trade are greater than growth in total Chinese imports, shorter haul movements into the country are likely to come under downward pressure. There is also plenty of potential to increase LNG trade between the two countries, taking into account rising US natural gas production and LNG demand in China. However, for the markets to see any meaningful growth in China’s imports of US energy, Beijing first has to remove a retaliatory 5% tariff on imports of US crude and a 25% tariff on imports of US LNG. So far Beijing has not publicly committed to any waivers or adjustments to these levies”, Gibson said.

The shipbroker concluded that “this week’s agreement is a step in a right direction and not just for tankers; however, many remain sceptical about China’s ability to deliver on most of its pledges. More importantly, the trade war is far from over. Around $250 billion worth of Chinese exports would remain subject to a 25% tariff and as such, most of the factors that have led to weaker global economic growth this year are still there. Both US and Chinese officials state they are ready to commence a second stage of negotiations, which could lead to further tariff reductions. However, it is unclear when and if this phase two deal could be reached. We can only hope that China makes good on its promises and that existing tariffs are phased out sooner rather than late”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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