As trade talks resume make sure your expectations are very low

Aromatics, Business, China, Company Strategy, Economics, Middle East, Naphtha & other feedstocks, Oil & Gas, Technology, US

By John Richardson

DON’T BUILD your mind up over this week’s US/China trade talk as major breakthroughs seem very unlikely.

One reason is that we have in effect entered the next presidential election season even though the primaries don’t begin until  early next year. President Trump has nothing to gain and everything to lose on softening his China approach, given that the the US economy is on the surface doing fine despite the trade war.

Another barrier to significant progress is, as I expected, Congressional resistance to the President’s offer last month to relax restrictions on US companies selling software to the Chines telecoms giant, Huawei. China hawks “stand ready to denounce Mr. Trump for any effort toward Huawei that could be seen as appeasement”, according to the Wall Street Journal.

This limits the president’s ability to use Huawei concessions as a bargaining chip in the new trade discussions, which are due to begin tomorrow. And for China, Huawei is a major sticking point as the company’s continued success is such a vital component of China’s attempt to escape its middle-income trap.

A further issue is the continued US insistence that China abandon state subsidies for manufacturing, one of the principal reasons why companies such as Huawei have been successful. Politically, because this is election season, the US cannot back down on this demand. China cannot accede to this demand as it would have to scrap its economic growth model.

Further, China wants the US to scrap existing tariffs as an indication of a goodwill,and as a precondition of it buying more US agricultural goods. As they say, “Good luck with that” because this is election season in the US.

The best I believe we can hope for is that the trade war won’t get any worse through the US imposing more tariffs on China and China reciprocating.

Failure to achieve major breakthroughs during this week’s talks would result in the trade war remaining a major drag on the global economy. The extent of the damage caused by the US’s trade and other disputes with several countries was highlighted by the IMF last week, when it cut its forecast for 2019 global growth to 3.2% from 3.3%.

For the petrochemicals business, spreads continue to tell the story of a weakening global economy in the context of relatively cheap feedstock costs. No matter what product you look at the story is consistent. Spreads are a multi-year lows even where supply is supposed to be tight this year. This must mean something is wrong with demand across all the petrochemicals markets.

I’ve obviously chosen benzene in for today’s chart as it is a major building block for many petrochemicals value chains. Benzene spreads remain at their lowest level since 2001.

When the G20 trade truce was agreed last month, I had expected spreads to enjoy a broad-based rebound on improved sentiment. I was wrong. Spreads have instead edged up, have remained flat or have fallen. This tells us that the trade war and the slowdown in the Chinese economy, which is not just about the trade war – along with rising oil prices on US, UK and Iran tensions – prevented any recovery.

More broadly speaking, I worry that there is still too much complacency out there about the difficulties that lie ahead.

PREVIOUS POST

The blog is on holiday but whilst on leave we will support ABS demand

11/07/2019

We will return on 29 July      

Learn more
NEXT POST

Trump latest tariffs risk global recession, 3.8m tonne lost PE demand

05/08/2019

By John Richardson PRESIDENT Trump is playing with fire as a result of his plan ...

Learn more
More posts
Global polyethylene in 2020: Margins will reach historic lows as new growth model emerges
08/12/2019

Here is a first of a series of outlook articles for 2020 where I focus on the risks ahead for the gl...

Read
Long term downcycle will transform global petrochemicals, creating new Winners and Losers
06/12/2019

By John Richardson THIS IS not a normal downcycle. Please get over that idea however many people, bo...

Read
Asian PE and PP margins at lowest levels in at least five years and will go lower……
04/12/2019

By John Richardson NOT since at least the beginning of 2014 have Northeast and Southeast Asian polye...

Read
Asian polypropylene market heads for major 2020 downturn
02/12/2019

By John Richardson THE ASIAN polypropylene (PP) market hasn’t been as bad as the region’s polyet...

Read
China new vehicle sales: A long term decline and what this means for petrochemicals
29/11/2019

By John Richardson THE MAINSTREAM view is that there is nothing fundamental about the decline in new...

Read
Asian copolymer polyproplyene used as a sink for growing oversupply of ethylene
27/11/2019

By John Richardson A SURE sign that the Asian ethylene-to-polyethylene (PE) markets are distressed c...

Read
Asian polyethylene shutdowns? Once again, good luck with that idea
25/11/2019

By John Richardson I was new to the game as I had only been analysing the petrochemicals business fo...

Read
Europe to become much more self-sufficient in polyethylene because of sustainability
20/11/2019

Yes, I know I promised to focus on Asia and its cracker-to-PE industry today and how the region will...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more