FocusTaiwan hopes to catch up with ASEAN in vital China market

01 July 2010 06:19  [Source: ICIS news]

By Nurluqman Suratman and Judith Wang

SINGAPORE (ICIS news)--Taiwan hopes to catch up with its southeast Asian neighbours in competing for the China petrochemicals market, after losing out a year in the implementation of  zero-tariffs on cross trades with the country, industry sources and analysts said on Thursday.

The China-Taiwan Economic Cooperation Framework Agreement (ECFA) signed on Tuesday came short of expectations, but was a victory nonetheless for Taiwanese petrochemical players.

A total of 88 petrochemical items, including aviation kerosene, lubricant oil, propylene, vinyl chloride monomer (VCM), polypropylene (PP), polystyrene (PS), xylene and polycarbonate (PC), were included in the “early-harvest list”, which would see a phased tariff reduction starting January 2011.

“Taiwanese producers were not entirely happy with some excluded products but they have moved on,” said Jack Shieh, executive manager at the Petrochemical Industry Association of Taiwan (PIAT).

“They are now more worried over the long term economic impact of the agreement,” he said, adding that there was still a chance that tariffs of certain products being re-imposed in future rounds of talks.

The ECFA was signed after five rounds of cross-strait talks on 29 June in Chongqing, China.

China is the biggest importer of petrochemicals in Asia. It is also Taiwan’s major market, where roughly two-thirds of its annual chemical output goes.

A Taiwanese producer of VCM downplayed the potential impact of the ECFA on its operations.

“At the moment, most of our VCM production goes into making PVC (polyvinyl chloride) in our plant in Taiwan while the balance are exported into SE Asia, where the price is better,” the source said.

The exclusion of polyvinyl chloride (PVC) from the list of commodities scheduled for the phased tariff removal under the framework came under heavy criticism, as the material is one of the five major commodity plastics that Taiwan exports to China.

China imposes a 6.5% tariff on PVC imports from Taiwan.

“The ‘door’ is open, but we hope it could open wider,” added Wang Hua, an analyst from Dalian-based Bohan Futures Broker Co said, citing new opportunities the ECFA now offers for Taiwanese producers.

Under the ECFA, a zero-tariff would apply next year on products that are currently charged with less than 5% duty, while the other products would be in for a phased tariff reduction over two years from 2011.

The new trade pact coming into force a year after China’s free trade agreement (FTA) with the Association of Southeast Asian Nation (ASEAN) took effect, however, would make it a bit tough for Taiwan to assert itself in the Chinese market, analysts said.

“The influx of chemicals from Singapore and Thailand has swarmed into China since the beginning of this year,” an analyst from Shanghai-based Galaxy Asset Management Co said.

“I doubt that Taiwan’s chemicals exports into China could grab and occupy the market. Grabbing the market share which has been taken by other countries and companies is not an easy thing,” Lu added.

In January this year, China’s FTA with the 10 ASEAN members came into force, allowing for zero tariffs on cross-border trade of a large number of products, including petrochemicals.

Under the ECFA, China would cut duties on roughly $13.8bn worth of imports from Taiwan, covering 539 items. Taiwan, on the other hand, would lower taxes on 267 items from China worth about $2.86bn, according to Danny Ho, a petrochemical analyst with Yuanta Securities in Taiwan.

Some Taiwanese players, however, could see clear benefit from the ECFA like the producers of polyester drawn texturised yarn that could see an increase in their market share in China, said Ho.

The inclusion of the material in the agreement was surprising given that China’s exports to Taiwan of this polyester yarn are currently restricted, he said

China derived 68% or 36,117 tonnes of its requirement for the material in 2009 from Taiwan last year, on which a 5% tariff applies.

The eventual removal of tariffs for this type of yarn used in clothmaking would give Taiwanese producers superior cost advantage over its competitors in China when the tariff is removed by 1 January next year, Ho said.

Taiwan-based producers such as Lealea, Zig Sheng, Shingkong Synthetic Fiber, Yi Jinn, Hong Yi Industry and Lan Fa Textile would benefit, he said.

With additional reporting by Aaron Cheong

($1 = €0.82)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
To discuss issues facing the chemical industry go to ICIS connect

By: Nurluqman Suratman

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