For China, American soy is a small fry; raw, LNG, coal are the main game: Russell

LAUNCESTON, Australia (Reuters) – The purchase of some US soybeans by China is seen as a tentative sign of a slight easing in the conflict between the world's two largest economies, but real progress would be the resumption of a booming energy business.

US and Chinese negotiators meet Tuesday in Shanghai for two days of talks, in the modest expectation of progress expected in the resolution of the trade imbroglio which resulted in the imposition of equal customs duties for imports and exports worth billions of dollars.

China's commitment to purchase more US agricultural products, including soybeans, is one of the areas in which progress has been made.

Data released Monday by the US government shows that soybean exports have increased, with nine bulk US soybean shipments carrying about 600,000 tonnes inspected for export to China during the week ended July 25th, the maximum for only one week since mid-February.

As positive as it may seem, China still buys far less than it does in the United States. Soybean purchases in the 2018-19 season are expected to drop to about 14.3 million tonnes, the lowest in 11 years and well below 27.7 million tonnes in 2017/18.

About 4 million tonnes of this quantity are still to be shipped and may be carried forward to the next marketing year, which runs from September to August.

What is clear is that soybean exports from the United States to China have fallen sharply in volume and value given the fall in soybean prices on the Chicago Mercantile Exchange.

Soybean futures ended at 905 cents a bushel on Monday, up from 803 cents in May, but also 16% below last year's peak of 1,078 cents, just before the start of the day. President Donald Trump's commercial battle with China.

In dollars per tonne, soybeans cost about $ 333 per tonne, which means that the 600,000 tonnes of which the export has been approved have a value of about $ 200 million.

In July, Refinitiv estimated crude oil exported from the United States to China at 8.1 million barrels for $ 494 million, baduming a price of $ 61.07 per barrel. by the Argus commodity price reporting agency.

The month of July will probably be the most important month for Chinese imports of US crude since August last year, with the arrival of 10.9 million barrels.

However, at around 261,000 barrels per day (bpd), July's imports remain well below the 344,000 bpd in the first half of last year.

If US exports of crude to China could return to levels seen in the first half of last year, they would be about $ 20.1 million a day, or $ 7.34 billion a year.

(Graph: US energy imports in China – tmsnrt.rs/2ylrQyl)

LNG, CHARCOAL MARRIED

It should be noted that China's imports of crude oil from the United States are not subject to any additional tariff, which may explain the renewed interest in cargo purchases observed in July.

However, two energy products are subject to import duties, with liquefied natural gas (LNG) and coal being subject to an import tax of 25%.

LNG and coal experienced strong growth in trade before the tariff war and have not yet shown a significant recovery.

China has only imported three LNG cargoes this year, one in January, February and March, according to Refinitiv data.

This represents a drop of 25 shipments totaling 1.73 million tonnes in the first half of last year.

In coal, American cargoes were purchased, two ships carrying about 152,000 tonnes of fuel unloaded in July.

This is probably coking coal used in the manufacture of steel and it is believed that some importers may have been able to obtain duty exemptions for coal imports.

However, coal imports are still much lower than in the first half of last year, with 2.09 million tonnes imported, for a monthly average of about 349,000 tonnes.

And the first half of 2018 was already lower than that of the same period in 2017: 4.03 million tonnes of US coal were shipped to China, an average monthly of about 671,000 tonnes.

What is clear is that the region with the highest growth potential for US exports to China, namely energy, remains well below this potential and will depend on whether or not efforts to resolve the commercial dispute.

A modest increase in soybean purchases could be a good thing, but the real action will be if China agrees to resume purchasing US crude oil, LNG and coal in significant volumes.