INSIGHT: US-Korea free trade deal may underpin PP export strategy

08 March 2012 17:22  [Source: ICIS news]

By Chow Bee Lin and Michelle Klump

SINGAPORE (ICIS)--Long shipment time and logistics issues are widely seen to be the major hindrances in the polyolefin trade flow between South Korea and the US, and hence bilateral trades of these petrochemicals are not expected to increase significantly, even in a duty-free environment.

Delivery from a resin plant to a plastic processor’s warehouse is estimated to take about two months, either from South Korea to the US or vice versa. Most buyers are unwilling to bear the price risks of such long shipment time, particularly when prices are volatile, and South Korean producers export plastic resins in 25-kg bags, but US importers prefer bulk shipments.

Despite the barriers, South Korean polypropylene (PP) producers are likely to try to tap the US market as part of a long-term strategy when the US-South Korea Free Trade Agreement (FTA) comes into effect.

Under the FTA, due to be effective on 15 March, hompolymer PP exports from South Korea will be exempted from tariff in the US, and South Korean block copolymer PP exports to the US will be subject to a lower duty of 4.3%, according to industry sources.

US import duty on South Korean block copolymer PP will be further reduced to 2.1% in 2013, before being removed in 2014, industry sources said.

Duty-free exports to the US look like an attractive option for South Korean PP producers because it is increasingly difficult for them to maintain their foothold in China, its current key export destination, as a result of intense competition from the domestic producers and the Middle East suppliers.

South Korea was the second largest exporter of PP to the US last year, accounting for 18,656 tonnes out of the total 104,910 tonnes of PP sold to the US.

That was a small quantity compared to the 1.2m tonnes of PP South Korea exported to China in the same period, but there are growing opportunities for Korean producers to gain a bigger share of the US PP market where price volatility has caused buyers to more seriously investigate imports as a way to help control costs.

The discovery of large shale gas reserves in the US in recent years is expected to reduce domestic propylene and PP production in the next few years, turning the country into a net PP importer. This unfolding development and the duty-exemption are likely to underpin South Korean producers’ export strategy in the coming years.

History has shown that when there is import demand in the US, South Korean PP producers are capable of responding to it quickly - South Korea exported significant volumes of PP and polyethylene to the US when plants there were forced to shut down because of Hurricane Katrina in 2005.

South Korea’s small volumes of PP exports to the US so far may not inspire confidence in the long-term prospect of this trade flow, but some Korean producers are not giving up on making further inroads in the US markets yet.

“Some of our plants have the facility to do bulk packing,” a PP producer said.

Another producer said: “It doesn’t cost much to install bulk packaging facility at our plants.”

Read John Richardson and Malini Hariharan's Asian Chemical Connections blog

 

By: Chow Bee Lin
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