Clinton, Trump pose threats to global chem trade

Focus article by Al Greenwood

HOUSTON (ICIS)–US presidential candidates Hillary Clinton and Donald Trump have both expressed opposition towards trade agreements, at a time when the nation’s petrochemical industry has enjoyed a growing trade surplus.

Voters will elect one of the candidates on Tuesday.

Both candidates oppose the Trans-Pacific Partnership (TPP), a proposed trade deal with 11 other countries.

Trump said he would seek to withdraw from the TPP. He would also pursue immediate renegotiation of the North American Free Trade Agreement (NAFTA).

If Mexico and Canada do not agree to a renegotiation, the US would notify them that it intends to leave NAFTA, Trump said.

Clinton said she would oppose new trade deals that do not meet what she called a high bar. That includes the TTP.

Clinton also said she would review existing trade agreements. “Hillary has said for almost a decade that we need to renegotiate NAFTA, and she still believes that today,” her campaign said in a policy briefing.

It is difficult to determine how such broad policy proposals would affect specific petrochemical markets.

Epoxy-resin producers in the US have complained about low-cost imports for years.

US regulators have investigated dumping allegations for melamine, styrene butadiene rubber (SBR) and polyethylene terephthalate (PET).

But the US has substantial trade surpluses in other petrochemicals. Because of the advent of shale gas, the nation’s producers enjoy cost advantages for many of their products.

Crackers in the US rely on gas-based ethane as a feedstock, while much of the world relies on oil-based naphtha. Even with the decline in crude prices, ethane production has maintained its cost advantage against naphtha.

US producers have used this cost advantage to increase exports. This was critical for polyvinyl chloride (PVC) producers in the wake of the US housing crisis, when they needed new markets to offset the decline in domestic demand.

The American Chemistry Council (ACC) has compiled the value of imports and exports of various chemicals in 2014. The table lists the value of these imports and exports in millions of dollars.

(1) includes intermediates

The table shows surpluses in all chemical groups and subgroups except for agricultural chemicals. The trade surplus for these chemicals as a whole has increased by 65% from 2004 to 2014, according to the ACC.

Renegotiating or terminating existing trade agreements could threaten this surplus. Avoiding new trade agreements could limit its growth.

Among industry trade groups, the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM) support free trade.

The AFPM has gone as far as to voice no opposition to US oil exports – even though some of its refining members were against them.

For the ACC, it strongly supports the TPP, and it has said that it should be expanded to include other key members of APEC (Asia-Pacific Economic Cooperation).

Exports will become even more critical for US producers during the rest of the decade, when they start up new polyethylene (PE) plants.

From the beginning, the companies building these plants did not expect that the US would absorb all of this new capacity. All along, they planned to export the excess material, especially to Asia. Fostering trade will be critical for these producers.

Petrochemicals are not the only hydrocarbons shipped out of the US. The country is now the world’s largest exporter of liquefied petroleum gas (LPG) and companies are now exporting ethane. US companies continue to commission new terminals to ship out liquefied natural gas (LNG). And Mexico imports massive amounts of gasoline from the country.

Mexico, in fact is the second largest export market for the US chemical industry, according to the ACC. The largest export market is Canada, the other member of NAFTA.

In regards to energy policy, Clinton’s individual energy policies would require some trade-offs.

On the one hand, she wants to encourage consumption of natural gas because it is a clean-burning fuel. But other policies could discourage gas consumption.

Although Clinton wants to repair or replace thousands of miles of pipelines, she also wants to “ensure new natural gas pipelines are built to the highest standards”.

New pipelines already face a web of permitting requirements from a large number of regulators. More layers of regulations could make the permitting process more difficult.

Gas producers need pipelines to ship the fuel to customers. Eventually, gas consumption will face constraints if it exceeds pipeline capacity.

Clinton also raised concerns about chemical disclosure used in hydraulic fracturing and induced earthquakes. Depending on the policies adopted to address these concerns, they could also hinder gas production.

Trump favours increased hydrocarbon and coal production. He wants the US to develop its “untapped shale, oil and natural gas reserves” and open onshore and offshore leasing on federal lands.

Also, Trump would “declare American energy dominance a strategic economic and foreign policy goal of the US”.

Trump said he would reduce barriers to what he called responsible energy production, although he did not specify what these barriers are.

Unlike Clinton, Trump’s policy summary does not mention pipelines, induced earthquakes or chemical disclosures for hydraulic fracturing.

However, like Clinton, he does want to encourage natural gas consumption to reduce emissions.

Trump’s policies could also require some trade-offs since he also wants to “protect clean air and water”.

His summary adds, “We will conserve our natural habitats, reserves and resources.”

Conservation will need to be balanced with increased energy production.

On Tuesday, the chemical industry should learn what they could expect for the next four years.

INSET IMAGE: Donald Trump (Bastiaan Slabbers/ZUMA Wire/REX/Shutterstock); Hillary Clinton (Andy Martin Jr/ZUMA Wire/REX/Shutterstock)