Think tank: South Korea seeks to tap US polypropylene market

19 March 2012 00:00  [Source: ICB]

Long shipment times and logistics issues are widely seen to be the major hindrances in the polyolefins trade flow between South Korea and the US, and hence bilateral trade of these petrochemicals is 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, from South Korea to the US or vice versa. Most buyers are unwilling to bear the price risks of a long shipment time, particularly when prices are volatile. Also, Korean producers export plastic resins in 25kg bags, but US importers prefer bulk shipments.

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

South Korea, Rex Features

 © Rex Features

PP producers are looking ahead to better US exports

Under the FTA, due to be effective on March 15, homopolymer PP exports from South Korea will be exempt from tariffs 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.

The US import duty on 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 Korean PP producers because it is increasingly difficult for them to maintain their foothold in China as a result of intense competition from domestic producers and 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 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 seriously investigate imports.

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 development and the duty-exemption are likely to underpin Korean producers' export strategy in the coming years.

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

Author: Bee Lin Chow and Michelle Klump

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