China petchems players calm on new tariffs, seek alternative suppliers

Author: Yvonne Shi


SINGAPORE (ICIS)--Chinese petrochemicals players appear calm ahead of the tariffs to be implemented on several US goods this week while speeding up the search for alternative suppliers.

Container stacks at Qingdao in ChinaHowever, some players conceded they will face losses on contractual volumes signed months ago which will be subject to tariffs.

On Thursday (23 August), a 25% tariff on $16bn worth of US-origin goods will come into effect, and petrochemicals players have been busy looking for alternative ways to replace imports from that country, acquire new supply and reduce possible losses.

Some buyers of ethylene glycol (EG), for example, said they are no longer importing from the US.

“We have new sources for supply and do not buy cargoes from US now,” said one big buyer.

China’s is heavily reliant on EG imports, although the proportion coming from the US has been decreasing in the past years.

Similarly, buyers of acrylonitrile (ACN) have turned to other regions for supply, rather than the US, which once played as an important role supplying the Chinese market.

Increasing ACN domestic production has also caused a reduction in imports.

Some key ACN end users like acrylonitrile-butadiene-styrene (ABS) producers said it has become common to get cargoes from other plants in Asia, rather than shipping them from the US.

“We have plants in other parts of Asia and can secure supplies [from those plants] to be used in China,” said an ABS producer.

Several traders of polyolefins said they have stopped purchasing US product, using Middle East suppliers instead.

The polyolefins sources added that it has become increasingly difficult to apply for letter of credits from banks to finance their purchase of any US goods.

“Nobody could accept a steep 25% increase on cost,” said a trader.

“Even if you’re importing cargoes that are not currently in the tariff list, banks are concerned about future risks. The trade war between China and US shows no sign of easing,” it added.

Some Chinese polyolefins buyers are trying to re-export volumes they had acquired in previous months, when a 25%  tariff on them was not expected.

The fast-developing trade spat between the US and China has prompted the publication of several, changing lists of products that would be subject to tariffs, adding further uncertainty.

The first Chinese tariff announcement excluded several polyethylene (PE) grades, but in its latest, updated list low linear density polyethylene (LLDPE) and high density polyethyelene (HDPE) were both included.

Low density polyethylene (LPDE), however, was removed from the list.

In order to reduce their losses, those polyolefins buyers are trying to re-export their contractual cargoes to markets like South Korea and Vietnam, according to sources.

A Chinese trade delegation kicks off on Wednesday a round of talks with US counterparts in Washington.

Most Chinese petrochemicals sources, however, said they are not too hopeful the talks would produce any positive results.

Pictured: Qingdao Container Terminal in China's Shandong Province
Source: SipaAsia/REX/Shutterstock

Additional reporting by Fanny Zhang