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Crude Oil13-Jun-2024
SINGAPORE (ICIS)–China has slammed EU’s
proposal to impose provisional tariffs on
imports of Chinese electric vehicles (EVs),
denouncing it as a “blatant act of
protectionism”, raising concerns that a trade
war between Asia’s biggest economy and a new
western front is brewing.
EU tariffs on Chinese EVs to rise to 27-48%
Retaliatory measures from China likely
EU imports of China cars surge sevenfold
over three years
“The European side has disregarded facts and
WTO [World Trade Organization] rules, ignored
China’s repeated strong opposition, and ignored
the appeals and dissuasion of multiple EU
member state governments and industries,”
China’s Ministry of Commerce said in a
statement issued late on 12 June.
The European Commission on 12 June notified
Chinese automakers, including EV giant BYD,
Geely, and state-owned SAIC Motor Corp, that it
will impose additional provisional tariffs of
17% to 38% on imported Chinese EVs from around
4 July.
These will be applied to existing 10% tariffs
imposed on all Chinese EVs, with the final rate
determined by each carmaker’s level of
cooperation with EU’s anti-subsidy
investigation launched in September last year.
NEW FRONT FOR TIT-FOR-TAT TRADE
WAR
China’s commerce ministry has urged the EU to
“immediately correct its wrong practices” and
“properly handle trade frictions through
dialogue and consultation”.
The ministry said it will “resolutely take all
necessary measures to firmly defend the
legitimate rights and interests of Chinese
companies”.
“This move by the European side not only harms
the legitimate rights and interests of the
Chinese electric vehicle industry but will also
disrupt and distort the global automotive
industry chain and supply chain, including the
EU,” it said.
The EU’s move follows the US’ tariff hikes
announced last month on Chinese imports of
EVs, batteries and other materials, starting 1
August.
In 2018, then US President Donald Trump
initiated a trade war with China by imposing
tariffs on Chinese imports to address alleged
trade imbalances, intellectual property theft,
and unfair trade practices. China retaliated
with tariffs on US goods, escalating tensions
between the two biggest economies in the world.
While reviews by the US and EU on Chinese goods
were under way, Beijing launched in May an
anti-dumping
investigation into imported polyoxymethylene
(POM) copolymer, also known as
polyformaldehyde copolymer – a key material in
electronics and automotive manufacturing.
China’s commerce ministry alleged that the
plastic is being sold below market value,
harming domestic producers.
The probe, targeting imports from the US, EU,
Taiwan, and Japan, could last up to 18 months
and is seen as a direct response to their
recent trade barriers against Chinese goods.
In the case of Taiwan, China has also suspended tariff
concessions on 134 more products from the
island, including base oil, chemicals, and
chemical products, citing Taiwan’s supposed
violations of the Cross-Strait Economic
Cooperation Framework Agreement (ECFA) with the
mainland.
Meanwhile, Japan’s tightened export controls on
23 types of semiconductor manufacturing
equipment that took effect on July 2023 was
deemed in line with restrictions imposed by the
US and the Netherlands, potentially hindering
China’s access to advanced chipmaking
technology.
China may issue further retaliatory measures,
potentially impacting global supply chains and
escalating trade tensions with major economies
in the west.
The automotive industry is a major global
consumer of petrochemicals that contributes
more than one-third of the raw material costs
of an average vehicle.
The automotive sector drives demand for
chemicals such as polypropylene (PP), along
with nylon, polystyrene (PS), styrene butadiene
rubber (SBR), polyurethane (PU), methyl
methacrylate (MMA) and polymethyl methacrylate
(PMMA).
CHINA 2023 CAR EXPORTS TO EU
SURGE
China’s exports of automobiles to the EU have
surged over the past year, particularly in the
battery electric vehicle (BEV) segment,
according to Nomura Global Markets Research.
Cars produced in China accounted for 20% of all
BEV registrations in the EU during the first
two months of 2024, it said, citing data from
automotive business intelligence firm JATO
Dynamics.
An analysis of January-April 2024 sales figures
from China’s top three EV manufacturers in the
EU, however, suggests that their overall
presence in the region is still nascent, Nomura
noted.
In 2023, EU’s imports of Chinese EVs surged to
$11.5 billion, more than sevenfold increase
from $1.6 billion in 2020, according to think
thank Rhodium Group.
China accounted for 37% of EU’s total EV
imports last year, it said.
In the first quarter of 2024, about 40% of
China’s EV exports or 145,002 units went to
Europe, according to official customs data.
Focus article by Nurluqman Suratman
Thumbnail image: An electric car at a
charging station near the European Commission
building in Brussels, Belgium.
(Xinhua/Shutterstock)
Crude Oil13-Jun-2024
SINGAPORE (ICIS)–China’s consumer inflation
rate is expected to remain weak in the near
future on persistently weak domestic demand,
raising worries about the risk of deflation as
the nation’s economic recovery struggles to
gain traction.
This comes as the country’s consumer price
index (CPI) rose by a mere 0.3% year-on-year in
May, unchanged from April and well below the
government’s 3% target.
“Amid still-weak domestic demand, we expect CPI
inflation to stay slightly
above zero in the near term and producer price
index (PPI) inflation to be slightly less
negative on a low base,” Japan’s Nomura Global
Markets Research said in a note.
China’s headline inflation rate is projected to
remain positive but stay mild under 1% until
the third quarter of this year, said Ho Woei
Chen, an economist with Singapore-based UOB
Global Economics & Markets Research.
“The deflation in the fourth quarter of 2023
will provide a low base for CPI to rebound more
strongly in the last quarter of the year,” Ho
said.
UOB’s full-year forecast for China’s headline
inflation is at 0.7% for 2024, compared with
0.2% in 2023, “but current trajectory suggests
that the risk is to the downside”, she added.
Meanwhile, factory gate prices continued their
downward spiral, with the PPI falling for the
20th consecutive month in May.
The PPI declined by 1.4% year on year in May, a
slight improvement from the 2.5% drop in April.
“The pace of PPI deflation is expected to ease
but this had been slower than expected as oil
prices stayed muted and overcapacity in some
industries weighed on the prices of
manufactured goods,” Ho said.
“Increasing tariffs imposed on Chinese goods
may further delay the price recovery.”
The persistent low inflation is a stark
contrast to the high inflation plaguing Western
economies, further fueling fears of deflation
as China grapples with sluggish consumer
spending – a key obstacle to the country’s
uneven recovery from the pandemic.
While inflation is likely to remain low in the
second quarter, it should begin to pick up in
the second half of the year, Dutch banking and
financial information services provider ING
said in a note.
“Although inflation is set to pick up this year
as the drag from falling food prices fades, it
is anticipated to remain well below target amid
slowing consumption and weak demand pressures,”
the World Bank said in its June Global Economic
Prospects report released on 11 June.
“Producer price pressures are also set to
remain weak in the context of subdued activity
and softening prices for commodities,
particularly energy and metals.”
China’s economic growth is projected to ease to
4.8% in 2024, down from 5.2 percent in 2023, as
activity is expected to soften in the latter
half of this year, according to World Bank
estimates.
While a potential uptick in goods exports and
industrial activity, bolstered by a global
trade recovery, is anticipated, this will
likely be counterbalanced by weaker domestic
consumption, it added.
“We expect domestic and external demand to
continue diverging over the near term, as the
property fallout sustains and the economy
rebalances itself,” Nomura said.
“Export growth is likely to remain resilient in
the near term, thanks to a low base, the
resilient US economy, the global tech upswing,
the price advantage of Chinese products and
some front-loading ahead of scheduled or
threatened tariff hikes.”
Focus article by Nurluqman
Suratman
Ethylene12-Jun-2024
HOUSTON (ICIS)–The US labor market has cooled
from its overheated conditions two years ago,
but the Federal Reserve still wants more signs
that inflation is approaching its goal of 2%
before it starts lowering its benchmark
interest rate, the chairman of the central bank
said on Wednesday.
Earlier, the Federal Reserve voted to maintain
interest rates at 5.25-5.5%. It also lowered
its forecast for future rate cuts to one
quarter-point decline, down from three in its
last forecast in March.
The Fed also slightly increased its forecast
for inflation.
The US central bank has a dual mandate of
promoting maximum employment and price
stability.
Earlier in the decade, the nation’s ultra-tight
labor market contributed to wage inflation.
The labor market remains strong, but it is
gradually cooling and rebalancing, said Jerome
Powell, Fed chairman. He made his comments
during a press conference following the Fed’s
interest rate announcement.
Job openings remain high and exceed the number
of unemployed people. Wages are running above a
sustainable path, Powell said.
Still, those job openings have fallen from even
higher levels, he said. Increased immigration
and higher rates of labor participation have
helped restore balance in the job market.
Powell said the current US labor market is
comparable to the years immediately before the
COVID-19 pandemic, when the unemployment rate
reached multidecade lows.
In addition to the cooling labor market, Powell
highlighted the May consumer price index (CPI),
a measure of inflation
that was published earlier on Wednesday.
Month on month, the CPI was unchanged.
“We welcome today’s reading and hope for more
like that,” Powell said.
The Fed itself noted that inflation has made
modest progress in recent months in approaching
its 2% target.
Still, Powell stressed that the Federal Reserve
needs more signs that inflation is under
control before it will start loosening monetary
policy and lowering rates.
In fact, when data like the CPI is released on
the same day that the Fed publishes its
economic forecasts, most members do not update
their projections, Powell said. “You don’t want
to be too motivated by a single data point.”
The need for more data helps explain why the
Fed increased its forecast for 2024 inflation
while noting modest progress towards meeting
the 2% goal.
That progress took place in recent months.
Progress needs to continue before the Fed is
confident that it can start lowering interest
rates without triggering an even faster rate of
inflation.
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Speciality Chemicals12-Jun-2024
LONDON (ICIS)–Germany’s auto industry is
opposed to tariffs on electric vehicles (EVs)
from China, trade group German Association of
the Automotive Industry said on Wednesday.
The group, known as VDA in its German acronym,
was reacting to a European Commission proposal of tariffs
on battery electric vehicles (BEVs) from China
after an investigation concluded they benefited
from unfair subsidies.
VDA said the proposed tariffs were not the
right tool to strengthen the competitiveness of
Europe’s auto industry.
Instead, the tariffs would further escalate the
risk of trade conflicts, to the detriment of
Germany’s automakers, it said.
“The fact is that we need China to solve global
problems,” in particularly in dealing with the
climate crisis, it said.
China played a crucial role in a successful
transformation towards electromobility and
digitalization, and a trade conflict would
jeopardize this transformation, the group said.
However, VDA added that the extent of the
subsidies China grants EV makers was “a
challenge” for Europe and it called on China to
make “constructive proposals” to settle the
dispute.
Germany ranks
first in Europe and second after China
globally in terms of EV production, and the
bulk of German EV production goes into export,
according to VDA data released this week.
Industry observers have noted that
Germany-based EV production relies on imports
of materials and batteries from China.
The US last month announced tariff
hikes on Chinese imports of EVs, batteries and
other materials, starting 1 August.
In related news, the business climate in
Germany’s automotive industry
deteriorated in May amid fears about
impacts on German automakers from the conflict
with China, according to a recent survey by
Munich-based ifo research.
The automotive industry is a major global
consumer of petrochemicals that contributes
more than one-third of the raw material costs
of an average vehicle.
The automotive sector drives demand for
chemicals such as polypropylene (PP), along
with nylon, polystyrene (PS), styrene butadiene
rubber (SBR), polyurethane (PU), methyl
methacrylate (MMA) and polymethyl methacrylate
(PMMA).
Additional reporting by Graeme
Paterson
Please also visit the ICIS
topic page Automotive: Impact on chemicals
Thumbnail photo shows a Volkswagen EV;
photo source: Volkswagen
Polyethylene Terephthalate12-Jun-2024
LONDON (ICIS)–Senior editors for Recycling,
Emily
Friedman and Matt
Tudball take a look at how both
the US and European R-PET markets are seeing
more activity around imported material, and
what that means for local recyclers in the US
and the EU, including:
The growing numbers of imports into the US
Price competitiveness of imports vs. local
material
Balancing recycled content with cost-saving
objectives
How imports stack up against legislation in
Europe
Ammonia12-Jun-2024
TORONTO (ICIS)–Canadian rail labor union
Teamsters Canada Rail Conference (TCRC) will
hold a new strike vote because an earlier
mandate for industrial action will expire on 30
June, it said in an update.
In early May, about 9,300 unionized conductors,
train operators and engineers at rail carriers
Canadian National (CN) and Canadian Pacific
Kansas City (CPKC) voted for a strike as early
as 22 May.
However, Canada’s federal labor minister then
referred the matter to the Canada
Industrial Relations Board (CIRB) for a
decision about a strike’s impacts on public
safety and health.
A legal strike or lockout cannot occur until a
CIRB decision, and it is unclear when that
decision will be made.
TCRC said in its update that under Canadian
labor law, the strike mandate from May is set
to expire on 30 June.
In order to be in a position to strike once the
CIRB makes its decision, TCRC will therefore
conduct a new strike ballot, beginning 14 June
and running until 29 June, it said.
WHEN COULD A STRIKE
START?As the CIRB process is
ongoing, the board has extended the deadline
for affected industry trade groups to make
submissions from 31 May to 14 June.
After the CIRB decision, TCRC would have to
give 72 hours’ notice before a strike can
begin.
The CIRB may grant the rail carriers’ request
for a 30-day extension, starting from the
decision date, before the 72-hour notice can be
served.
The rail carriers have estimated that given the
CIRB process, a strike will not start before
mid-to-end July.
The parties do not have to wait for the CIRB
process to run its course. Instead, they can
continue bargaining and reach an agreement at
any time.
However, TCRC said that since the strike was
referred to the CIRB, the rail carriers “have
completely withdrawn any commitment to
negotiate”.
The rail carriers have proposed binding
arbitration, but TCRC has rejected this.
IMPACT ON CHEMICALS
The uncertainties around the timing of rail
labor disruption are affecting Canadian
chemical, fertilizers and other manufacturers.
Canadian chemical producers rely on rail to
ship more than 70% of their products, with some
exclusively using rail, while in the
fertilizers industry about 75% of all
fertilizers produced and used in Canada is
moved by rail.
In the run-up to potential strikes, producers
need to prepare, longer strikes can force them
to curtail production or shut down plants, and
after a strike ends it can take weeks for
normal operations to resume.
The impacts may be limited to some extent as
the CIRB can order that rail shipments of
certain essential products, for example water
treatment chemicals, be maintained during the
strike.
Thumbnail photo source: Canadian
National
Gas12-Jun-2024
Germany’s Uniper announces €13bn award in
arbitration claim against Gazprom Export
Recovering the award will likely determine
gas supply dynamics in Europe in the
longer-term
Uniper may set precedent for other
companies involved in similar arbitration
claims
LONDON (ICIS)–Uniper’s announcement it was
awarded more than €13 billion in damages for
non-supplied Russian gas volumes since mid-2022
raises complex questions.
Given the sheer size of the award and the
estimated 25 billion cubic meters that Uniper
imported annually from Russia before Gazprom
Export curtailed them, there is no doubt that
the steps taken by Uniper to recover the award
could impact future gas supplies to Europe at
least in the mid term.
The award made on 7 June came nearly three
weeks after Austria’s OMV Gas Marketing and
Trading, which has a long-term supply contract
with Gazprom Export,
said it had received a notice from an
unnamed European company seeking to seize
payments due to the Russian producer as part of
a court ruling.
It is unknown whether OGMT received the notice
from Uniper or, whether in the light of the
latest arbitration award, the German
state-owned company would indeed seek to seize
OGMT’s payments to Gazprom Export.
Considering that Gazprom experiences financial
difficulties, reporting its biggest losses in
the last 20 years and that relations between
Russia and western countries, including
Germany, are frozen following Russia’s
full-scale invasion of Ukraine, it is highly
unlikely that Gazprom Export would pay the
financial value of the award.
FALLING PRODUCTION
Nevertheless, Gazprom’s production has
reportedly fallen to an all-time low in 2023,
after it lost its European market share,
cutting supplies to consumers such as Uniper in
the wake of the invasion of Ukraine in 2022.
This makes it mindful of the fact that low
production could lead to shut-ins with
irreversible damage to gas wells.
The alternative for Uniper and Gazprom,
therefore, might be to settle for an option
where Gazprom would keep its production going
while Uniper would receive the equivalent of
the award’s financial value in natural gas
deliveries.
The issue may in fact gather momentum as
various European stakeholders are now
considering the possibility of continuing the
transit of gas through Ukraine once the
existing agreement expires on 1 January 2025.
It may not be mere coincidence that just hours
before Uniper announced the arbitration award,
the German economy minister Robert Habeck said
Europe was engaged in ‘intense’ work to keep
gas flowing via Ukraine.
TRANSIT
Ukrainian officials have repeatedly insisted
the country would not renew or sign a new
contract, although there had been hints in
recent months that individual European
companies could be allowed to book capacity at
the Ukrainian-Russian border.
Nevertheless, Ukraine is not the only option
that Uniper may have to import gas in lieu for
its arbitration award.
The company established a subsidiary in Turkey
– Uniper Enerji – exactly a year ago and more
recently increased its capital to Turkish lira
77 million (€2m).
The sum may be small, but by increasing it from
an initial TL53 million, the company is
preparing itself to show it has sufficient
funds to receive a licence from the Turkish
regulator EPDK to import, export and trade gas.
By positioning itself to import gas via Ukraine
and Turkey would not necessarily mean Uniper
would be able to use the physical molecules in
Germany, considering the distance and high
transmission cost.
Imported volumes could be sold in southern and
eastern Europe at highly discounted prices.
Many companies active in this region had a
bumper year in 2023, as they reportedly
imported gas sourced in Turkey and potentially
of Russian origin at heavily reduced prices and
sold them at a premium on central European
hubs.
GERMAN LNG IMPORTS
For gas supplies to Germany, Uniper may now
find itself freer to turn to the LNG market to
secure long-term volumes to meet its customers’
needs.
For as long as the prospect of a resumption of
Russian pipeline volumes that it is
contractually obliged to take – or pay for –
was on the horizon, the company would have
feared being committed to too many long-term
take-or-pay commitments.
With this prospect having been removed, Uniper
is theoretically free to sign new LNG import
contracts to replace Russian pipeline volumes
that should have run until the 2030s.
Germany certainly has the capacity to
facilitate this: in the aftermath of Russia’s
invasion of Ukraine, the country rushed to
secure LNG import infrastructure and now has
four LNG import points – at Mukran,
Brunsbuettel, Stade and Wilhelmshaven deploying
up to six floating storage and regasification
units (FSRUs).
Yet, while Uniper’s German peers signed LNG
contracts immediately after the crisis hit,
Uniper was somewhat less bullish.
OTHER BUYERS
In May 2022, EnBW signed deals with Venture
Global for a total of 1.9 million tonne per
annum (mtpa) of US Gulf LNG, followed in 2024
with a further deal for 0.6mtp, with Abu
Dhabi’s ADNOC. Also in Germany, RWE ended 2022
with the signing of a 2.25mtpa contract with US
supplier Sempra.
France’s ENGIE, another offtaker of Russian
gas, meanwhile in 2022 locked down 1.75mtpa of
LNG from US supplier NextDecade’s Rio Grande
project. In Italy, ENI secured a beefed-up deal
for Algerian pipeline gas.
To date since the crisis hit, Uniper has locked
down just 0.8mtpa of new long-term contractual
LNG, for flexible volumes from the portfolio of
Australia’s Woodside. The door may now be open
for further long-term commitments to be signed.
Uniper’s next actions will no doubt impact
supply flows to Europe and potentially set a
precedent for future steps by companies which
have ongoing arbitration claims against Gazprom
Export.
By Aura Sabadus and ICIS analyst Rob Songer
Recycled Polyethylene Terephthalate12-Jun-2024
SINGAPORE (ICIS)–Asia’s recycled polymers
markets were sluggish for the most part of last
year, and challenges early this year continue
to dim the short-term outlook.
In the last few years, legislation regarding
recycling have been put in place across the
region, but obstacles limiting growth in this
sector remain.
In this podcast, ICIS senior editor Arianne
Perez and analysts Joshua Tan and Chua Xin Nee
share their thoughts about current
developments.
Naphtha12-Jun-2024
SINGAPORE (ICIS)–Propane in northeast Asia is
losing its advantage over naphtha as a cracking
feedstock, but the spread is expected to widen
again in August-September due to higher naphtha
forecast prices.
Propane price spread over naphtha below
$50/tonne for first time since
end-January
NE Asia propane firm on year-to-date high
China PDH plants run rates
Crackers using imported propane require
about two months to evaluate feedstock
economics
In this podcast, ICIS LPG analysts Yan Wang and
Shihao Zhou discuss the current market dynamics
and outlook.
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