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Sources say that China's Satellite Chemical has halted its ethylene project due to US trade tensions.

Satellite Chemical, China's biggest importer of U.S. Ethane, has suspended plans to build its 3rd ethylene unit due to the protracted U.S. China trade tensions as well as a lack in government and regulatory approvals.

The cracker would cost around $1 billion, and have a maximum capacity of 1.5 million metric tonnes per year. It would convert ethane to ethylene, which is a crucial building block in petrochemicals. This is part of the multi-billion dollar phase 3 expansion by the company in Lianyungang in eastern China.

China purchases half of U.S. exports of ethane and almost all of its imports of ethane are from the U.S. The delay shows the dangers of China's increasing reliance on U.S.-produced ethane.

Two sources say that the pause occurred in June. It followed the escalation of the U.S. - China tit-fortat trade war, in which Beijing imposed a 125% tariff on U.S. products, including ethane. Later in the month, it was lifted. The U.S. temporarily restricted ethane exports in late May after Beijing was accused of slowing down rare earths shipments.

Two sources claimed that Satellite was about start the construction of the cracker, after almost finishing construction of one petrochemical unit in Lianyungang during the second quarter.

Three sources said that the central government ordered the company to stop construction because Beijing was concerned about the rising demand for U.S. Ethane, which could give Washington more leverage in the trade wars.

Two sources reported that authorities also found out that Satellite didn't have the necessary regulatory approvals to crack the ice. They only had the green light on the downstream units.

Sources declined to identify themselves as details of the story are not publicly available.

Satellite responded to a question about the government's pause order, and the approval status, by saying that the company "consistently complies with Chinese law and global regulations."

Satellite said it would update stock filings on the progress of its projects.

The National Development and Reform Commission of China, which is responsible for the approval of large industrial investments in China, has not responded to a comment request.

JPMorgan analysts stated in a client note dated October 15, that Satellite could have to wait for the U.S. China trade relations to stabilize before resuming construction of the third cracker. This would delay phase 3 expansion, which was originally scheduled to begin in the first half 2027.

Other Projects Continue

Three sources stated that Satellite will be moving forward with several downstream projects such as the alpha-olefin/polyolefin-elastomer (POE), units which produce high-performance plastics for automobiles and packaging.

Satellite announced in a mid-2024 stock filing that the key units for phase 3 include two 500,000 tpy polyethylene facilities, five 100,000 tpy alpha olefins and three 200,000-tpy POE units.

Satellite was among the first Chinese companies to convert abundant and inexpensive U.S. natural gas by-product ethane into ethylene.

It is the largest importer of U.S. Ethane in the world. Ethane technology is cheaper and emits less pollution than oil-based technologies.

To secure feedstock, Satellite invested in a 180,000-barrel-per-day terminal in Nederland, Texas, in a joint venture with U.S. firm Energy Transfer in 2018.

Satellite and Energy Transfer have also reached an agreement for the supply of US ethane. The deal will last until 2030. (Reporting and editing by Jamie Freed, Siyi Liu, Sam Li and Trixie Yap; Additional reporting by Chen Aizhu)

(source: Reuters)