Turning The US Story On Its Head

Business, China, Company Strategy, Economics, Polyolefins, South Korea, US

By John Richardson

THE big US petrochemicals story at the moment is, of course, shale gas and the potential it offers for the local industry to substantially expand capacity.

This would, in theory, give producers a strong position to export to South America, Asia and Europe. Exports are going to be essential as the US market, no matter how well it grows, will not be able to absorb anywhere close-to the amount of new polyethylene (PE) capacity being planned.

The polypropylene (PP) story is a little more complicated. Propylene availability is being reduced as a result of existing cracker operators switching to lighter feeds and supply of C3s from refineries being reduced. New cracker projects are also mainly ethane-based.

The US has the potential to go some distance towards compensating for any PP shortfall by investing in propane dehydrogenation (PDH)-to-PP facilities. Shale gas is also yielding big increases in propane and butane supply, as well as ethane.

But while new US PDH production will be advantaged, it will not be advantaged enough to offer a platform for exports, said Stewart Hardy, the UK-based consultant with ChemSystems.

Returning to PE as the big potential “export story”, therefore, the blog remains sceptical over whether the US would be able to find easy markets. Global growth prospects are fragile and China might well become far-more self-sufficient.

Turning the story on its head, the US might also become an export target for producers unable to sell into China.

An interesting ICIS Insight article by my colleagues Chow Bee Lin and Michelle Klump discusses how the South Koreans could take advantage of the US-South Korea Free-Trade Agreement that comes into force on 15 March. This will allow the South Koreans to export PP to the US with reduced duties, they point out.

The US-South Korea FTA also involves a reduction in PE import duties.

Exporters to the US have traditionally faced an additional “non-tariff barrier”: US converters take delivery of polymers via railcars and then store their inventory in large-scale silos, whereas exporters mainly move product around the world in plastic bags, which are stored in container ships. 

Anybody wanting to penetrate the US market has had to bear the extra labour cost of taking the pellets out of bags and placing them in railcars, after arrival at US ports.

It also takes around two months to ship polymers from South Korea to the US, my colleagues also point out.

But an industry source believes both these additional barriers to trade are now avoidable.

“The South Koreans can ship in bulk containers, allowing polymers to go directly into the US silos system,” he said.

They can also deliver into local distribution hubs and then agree on pricing, rather than set pricing before delivery, or while cargoes are at sea, he added.

Customers would, as a result, not have to wait two months for delivery as they would be able to place their orders directly with these local distribution hubs.

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