The signing of the Regional Comprehensive Economic Partnership (RCEP) by fifteen Asia-Pacific economies on Sunday will shore up imports of energy commodities, including base oils and light cycle oils (LCO), though it will have a limited impact on the trade of natural gas and crude oil.
The 15 economies, including China, Japan, Australia, South Korea and 10 ASEAN countries, signed the pact on Sunday to form the world’s largest free trade zone.
According to the Ministry of Commerce, members of the RCEP will scrap trade tariffs for each other within the next 10 years, and tariffs for certain commodities will be removed immediately. In total, tariffs on more than 90 percent of the commodities traded within the RCEP bloc will be exempted.
As RCEP members settle details of their trade negotiations, China’s imports of certain energy commodities will rise, which will benefit exporters in the bloc such as Japan and South Korea, experts said.
“In terms of LCO, South Korea is now China’s largest source of imports, with an importing tariff of 4.2 percent. China also imports a large amount of LCOs from Japan with a 7 percent tariff,” said Li Yan, an analyst at market information provider Oilchem. “I believe LCO imports from those countries will see a hike once the tariffs are reduced or even eliminated under the RCEP framework,” he added.
Li also predicted that China’s imports of base oils will rise “markedly,” with imported costs being lowered. Currently, China imports about 70 percent of base oils from South Korea and Singapore.
However, he said that the impact of the RCEP on China’s crude trade is limited, as ASEAN countries are not China’s major source of crude imports. The RCEP does not include any Middle East oil exporters or OPEC member nations. Currently, Malaysia is the largest Southeast Asian crude exporter to China, with its crude accounting for about 2.5 percent of China’s annual crude imports.
“Many independent refineries in Malaysia are processing crude. If procurement costs are lowered in the future, China may increase imports of crude from Malaysia,” Li told the Global Times.
Neal Guo, director of gas marketing at market information provider Sublime China Information Co, said that the RCEP’s signing is unlikely to cause great change to China’s natural gas imports as both pipeline gas and liquefied natural gas (LNG) are already exempted from importing tariffs.
However, experts stressed that the influence of the RCEP goes much further than just slashing tariffs, also helping to stabilize trade relations among its member countries.
“For example, China’s coal imports from Australia have been overshadowed by the geopolitical frictions between the two, while the newly-signed RCEP should serve stabilize their trade partnership,” Ren Huiyun, a coal analyst at Sublime China Information Co.
Guo also noted that Australia, Indonesia and Malaysia are major LNG exporters, and the RCEP deal would stabilize China’s LNG imports in the coming months.
According to Li, the RCEP is expected to lower the costs of importing raw materials and manufacturing, in turn helping China to expand exports in certain areas.
“For the energy sector, there will be more opportunities than challenges, and domestic energy companies should think deeply about how to upgrade their industrial structure to coordinate with possible changes in energy commodity trade in the future,” he said.