INSIGHT: US refiners to face higher oil, catalyst costs with Trump’s tariffs

HOUSTON (ICIS)–The tariffs proposed by President-Elect Donald Trump on imports from Mexico, Canada and China would raise costs for the heavier grades of oil needed by US refineries as well as rare-earth elements used to make catalysts for downstream refining units.

Trump said he intends to issue an executive order that would impose tariffs of 25% on imports from Mexico and Canada on January 20, his first day of office. He also announced intentions to impose a tariff of 10% on imports from China. This would be on top of the existing duties that the US already imposes on Chinese imports.

Trump could decide to modify or even withdraw the proposals – especially if the US can reach a deal that addresses illegal immigration and drugs, the impetus behind the proposed tariffs.

However, the tariffs as they are proposed by Trump would raise costs for key inputs used by US refiners. Outside of fuels, it could rise costs for fluoromaterials, since Mexico is the source of most of the imported feedstock.

US REFINERIES DESIGNED FOR IMPORTS OF HEAVIER CRUDES
US refineries are generally designed to process grades of crude that are heavier than the oil it produces domestically from shale, said Michael Connolly, principal refining analyst for ICIS.

As a result, the US exports its surplus of light oil and imports the heavier grades needed by its refineries.

Those imports help fill out refining units that process heavier crude fractions, such as hydrocrackers, cokers, base oil units and fluid catalytic cracking (FCC) units, Connolly said.

In 2023, the majority of those imports came from Canada and Mexico, as shown in the following table showing the top five sources of foreign crude. Figures are listed in thousands of barrels/day.

COUNTRY	IMPORTS	%
Canada	3,885	59.9
Mexico	733	11.3
Saudi Arabia	349	5.4
Iraq	213	3.3
Colombia	202	3.1
Total US imports	6,489	100

Source: Energy Information Administration (EIA)

“If this tariff was to apply to crude, it would be damaging to the US refining industry and thus the US economy,” Connolly said.

The damage would stem from the nation’s position as the world’s largest exporter of refined products.

In 2023, the US was the world’s largest exporter of gasoline, with shipments of 900,000 bbl/day, according to the EIA. More than 500,000 bbl/day of those exports went to Mexico.

The US is also a major exporter of distillate fuel oil, with shipments reaching 1.12 million bbl/day in 2023, according to the EIA.

For petrochemicals, FCC units are important sources of propylene, so tariffs could have an effect on margins for propylene derivatives.

FCC operations could receive another blow from the additional tariffs that the US could impose on imports of rare-earth materials from China.

RARE EARTHS AND FCC CATALYSTS
FCC catalysts are made with lanthanum and cerium. For most categories, China was the main source of these rare earths in 2023, as shown in the following table. Figures are in kilograms.

HTS Code	Product	Imports from China	Total imports	%
2846.10.0050	Cerium compounds other than cerium oxides	1,121,069	1,958,581	57.2
2846.90.2005	Rare-earth oxides except cerium oxides containing lanthanum as the predominant metal	52,045	479,885	10.8
2805.30.0005	Lanthanum, not intermixed or interalloyed	144,182	144,242	100.0
2846.90.8070	Mixtures of rare-earth carbonates containing lanthanum as the predominant metal	102,423	119,626	85.6
2805.30.0010	Cerium, not intermixed or interalloyed	3,262	3,466	94.1

Source: US International Trade Commission (ITC)

Lanthanum and cerium are byproducts of the production of neodymium and dysprosium, two rare earth materials that are used to make magnets.

TARIFFS ON MEXICAN HYDROFLUORIC ACID
If the tariffs go through, they could raise costs for US producers of fluoromaterials. Hydrofluoric acid is the feedstock for almost all fluorochemicals and fluoropolymers, and Mexico accounted for all of the 87 million kg of acid that the US imported in 2023, according to the ITC.

Fluorochemicals are used to make refrigerants as well as blowing agents used to make polyurethane foams. Another fluorochemical, lithium hexafluorophosphate (LiPF6), is used as an electrolyte in lithium-ion batteries.

For fluoropolymers, demand is growing because of their use in semiconductor fabrication plants (fabs), 5G telecommunication equipment and membranes used in fuel cells and green-hydrogen electrolysers.

Hydrofluoric acid is also used as a catalyst in many alkylation units at refineries.

Insight article by Al Greenwood

Thumbnail shows a pump used to dispense fuel produced from refineries. Image by Shutterstock.