29 November 2013 09:36 [Source: ICB]
Duty hike on GCC material could be an opportunity for US exporters, especially once new capacities come onstream
A 2014 tariff hike on Middle East exports of polymers to Europe may open the window slightly for more material to flow to that region from the US, but the greatest trade boost will not likely be seen until future US polyethylene (PE) expansions are in place, producers and traders said.
Duties on chemicals and polymers from the Gulf Cooperation Council (GCC) region will more than double to 6.5% from the current level of 3.0% starting on 1 January 2014 as changes to the EU’s Generalised System of Preferences go into effect.
The increase will put tariffs for Middle East exports on par with the existing tariffs on material from the US.
When accounting for ocean freight, resin from the Middle East will still have a cost advantage over the US. However, the increased GCC duties may cause some European buyers to look to the US to supplement GCC material, sources said.
“I think the opportunity [for exports to the EU] has always been there, and the duties are just going to make it a little bit sweeter,” said one US producer.
Another producer agreed, with the caveat that there may not be that much excess US material available.
“I think it will open more opportunities, but then again, it remains to be seen because you are going to see more US PE producers sold out looking into 2014 and 2015,” the producer said.
Because of the higher cost, naphtha-based cost structure in Europe, many of the European producers have moved away from more commodity-type resins, such as high density polyethylene (HDPE) blow moulding or linear low density (LLDPE) butene, and are focusing on more specialised products, sources said.
“That is leaving a void for the commodity-type products, such as the dairy grade resin,” said one US producer. “I think the US is going to fill some of that gap.”
A third US producer said it doesn’t see any significant impact from the change in GCC duties, adding that US producers do not need to fight other well-established European suppliers for a larger piece of a low growth market.
“I seriously doubt it is going to change any trade flows,” the producer said.
However, the producer and others agreed that European processors may take this situation as an opportunity to try to establish relationships with US producers ahead of announced US PE capacity expansion in the coming years.
“Now that the US is the new Middle East, everyone is trying to tap into the cost structure here,” a US PE producer said.
Already 10 companies have announced plans to expand PE capacity in the US. If all the announced plants proceed as planned, the PE industry as a whole will see a 28.7% boost to the existing North American PE capacity, according to an analysis by ICIS. That growth could come potentially in the span of three years, with new capacity set to come online between 2015 and 2017.
Much of that new material will be targeted for the export market, with expectations of export sales accounting for as much as 42% of US PE production by the end of the decade.
“European producers are going to continue to shut down their capacity, and that is really going to impact supply,” said one producer. “[European processors] want to develop a relationship [with US producers] and have it in place by 2017.”
A trader agreed, saying that while it does not necessarily see an immediate impact from the higher GCC tariffs in Europe, it does believe it is a first step to opening the window for more trade between the the US and Europe.
“I think it will have an impact – maybe not immediately – but long term, it will be a good thing for us,” the trader said.
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