On April 10, the U.S. government announced an increase in “reciprocal tariffs” on Chinese goods, raising the comprehensive tariff rate by as high as 125%. In response, China raised the additional tariff rate on U.S. imports from 84% to 125% on April 12.

The “grey rhino” event of U.S. tariff hikes poses severe challenges to China’s ethane importers. However, “in-transit goods” are temporarily unaffected by the tariff adjustments. Market players are adopting a wait-and-see approach, expecting a turning point.

Domestic Supply Shortage and High Dependence on U.S. Imports

China’s ethane supply comes from both domestic production and imports. Domestic output is limited due to technical deficiencies. Most domestically produced ethane is transported via pipelines in gaseous form, with only a small portion processed into liquid form and transported by tankers. In 2024, domestic liquid ethane output was approximately 125,900 tons, while imports reached around 5.5 million tons. Thus, domestic supply accounts for only 2%, with imports making up 98%.

Remark: As the March import data from the GACC has not been released yet, the March ethane import data is estimated by SCI based on import shipping schedules.

The high import dependency means that changes in U.S. ethane market supply and demand and tariff adjustments significantly impact China. As the sole global bulk exporter of ethane, the U.S. dominates the supply side. According to the U.S. Energy Information Administration (EIA), the U.S. will account for 65% of the global ethane production in 2025, with a daily output of 2.8 million barrels. However, the U.S. also has a strong export demand due to limited ethane storage capacity and high costs. EIA data shows that as of April 2025, the U.S. consumes about 2.25 million barrels of ethane daily, leaving 550,000 barrels for export. China, with its large reception capacity, is a key player on the demand side, receiving about 60% of U.S. ethane exports. While Chinese ethane importers face short-term pressure from rising tariffs, the U.S. export sector is also under significant pressure.

“In-Transit Goods” Unaffected by Tariff Hikes

Recent tariff policy upgrades are outlined as follows:

On April 2, the U.S. announced a 34% “reciprocal tariff” on Chinese goods. On April 4, China announced additional tariffs on U.S. imports, effective from 12:01 PM on April 10. On April 7 (U.S. Eastern Time), the U.S. threatened to further increase tariffs by 50%. On April 8, the U.S. raised the “reciprocal tariff” rate to 84%. On April 9, China announced it would raise additional tariffs on U.S. imports to 84% from 34%, effective from 12:01 PM on April 10. On April 10, the U.S. increased the “reciprocal tariff” rate to 125%. On April 11, China announced it would raise additional tariffs on U.S. imports to 125% from 84%, effective from April 12. China stated it would ignore further U.S. tariff hikes.

Customs Announcement No. 58 of 2025 on April 9 clarified that importers could apply to exempt “in-transit goods” from additional tariffs. Goods that departed from the origin before 12:01 PM on April 10 and arrived in China between April 10 and May 13 would not be subject to the new tariffs. Given the 20-40 day transport time for U.S. shipments, ethane arriving before April 30 could still enjoy the original tariff rate of 1%. Thus, the impact of tariff hikes on “in-transit goods” is temporarily limited. Chinese ethane importers are currently waiting to see how the situation develops.

If tariffs increase to 126%, the cost of ethane for ethylene projects in China will rise substantially. Due to storage and transportation constraints, ethane is relatively cheap but may lose its cost advantage over naphtha when tariffs reach 50%. At 126%, importers would face severe losses. Alternative feedstocks are being sought, but no viable options have emerged. Domestic ethane supply is insufficient, and global alternatives are limited. The U.S. is currently the only source of ethane imports. Middle Eastern ethane is not available for export. Importers are exploring options like feedstock processing, tariff exemption and ethylene swap to mitigate tariff impacts.

Wait-and-See in Short-Term, Diversification Essential in Long-Term

In the short term, the Chinese ethane market may adopt a wait-and-see approach with reduced activity. Firstly, “in-transit goods” arriving before April 30 will not be subject to additional tariffs. U.S. President Trump has hinted that high tariffs on Chinese goods may decrease. If tariffs are reduced before the new rates take effect, the cost pressure on Chinese importers would ease. Secondly, the U.S. relies heavily on China as a major buyer for its ethane exports. To maintain export channels, U.S. FOB prices may decline to offset tariff costs. However, the tariff hikes will likely increase landing costs, reduce the economic viability of ethane imports, and impact coastal ethylene projects. Some companies may switch to propane or reduce production utilization rates. Yet, the actual implementation of tariffs on “in-transit goods” is still pending, and market players are largely waiting to see how things develop.

In the long term, accelerating domestic resource development and diversifying import channels are crucial. The tariff impact stems from China’s high dependence on U.S. ethane supplies. To address this, China should enhance domestic ethane production under the “increasing reserves and production” policy, exploring unconventional natural gas fields. This could boost ethane output. The tariff hikes may accelerate domestic ethane development by promoting resource, technology, policy, and market integration, reducing production costs through innovation. Globally, China should diversify its ethane import sources. The Middle East, the world’s second-largest ethane supplier, mainly uses its ethane for local ethylene production but has not yet exported to other regions. However, China’s agreement with Qatar on LNG with ethane extraction shows promise. Although ethane supplies under this agreement will not reach 500,000 tons annually until 2026, the Middle East’s potential entry into the market offers more choices for China’s future ethane imports.