GPCA '18: Trade war to hit global demand for chemicals

Source: ICIS News

2018/11/26

DUBAI (ICIS)--Trade protectionist barriers recently built up will hit global demand for chemicals as they trigger changes in the flows of goods, industry executives said on Monday.

\Cranes at harbourAmid the escalating US-China trade war, the chemical industry’s demand pattern will change in the near term, said Ahmad Al Saleh, business director for ethylene glycol at Kuwaiti producer EQUATE.

“Any major disruption … will obviously impact demand and the [chemicals industry] has to be very careful,” he said on the sidelines of the 13th Annual Gulf Petrochemicals and Chemicals Association (GPCA) Forum in Dubai.

“I would like to be optimistic but the indicators are going in the wrong way … We are already seeing deteriorating capacity utilisation globally and temporary demand destruction,” Al Saleh said.

"I believe that we are only see of the tip of the iceberg with the impact on margins, demand, and curtailment of investments. We are going to see financial-related impact which will be more structural.”

A prolonged trade war could cause “real demand destruction”, he added. 

Moreover, the imposition of tariffs will have a longer-term effect on innovation and competitiveness of the industry, said Rene Van Sloten, executive director for industrial policy at the EU chemical trade group Cefic.

“It makes your industry outdated,” he said.

Societal concerns about the environment also adds further barriers to trade, Van Sloten said.

“It’s not just tariffs…We are on enormous public scrutiny by NGOs [non-governmental organisations]. We see a lot of other things on trade agendas such as sustainability,” he said.

“All these things creep into the trade agenda, it makes it more difficult to negotiate trade agreements.”

Meanwhile, EQUATE’s Al Saleh said that the ensuing changes in global trade would present opportunities for regional governments to formulate new trade agreements.

“We don’t even have trade agreements with our major trade partners,” Al Saleh said, adding that the current climate gives new opportunity to discuss new “regulatory platforms” for the chemicals industry and governments.

As for the GCC, the region will continue to look at and promote internal demand consumption in chemicals, he said.

“If we look at 10 years back, internal demand for basic chemicals is half of what it is today… there is demand growth –[but] it will not fulfill the overall [chemicals] output in the region,” Al Saleh said.

“At the minimum it [the trade war] brings stagflation, demand destruction and oversupply, and it will have a significant impact on innovation,” said Michael Walls, vice president for regulatory and technical affairs at the American Chemistry Council (ACC).

“We are innovators of the chemical industry because of the global market," Walls said, adding that innovation could be curtailed if chemical players are forced to concentrate on national or regional markets.

“I think for us in chemicals, we are in an ideal position to demonstrate what the benefits of global trade are. It provides many of the answers that protectionism creates, such as unemployment, etc,” he added.

Pictured: Cranes at South Korea's Busan harbour Source: Jeon Heon-Kyun/EPA-EFE/REX/Shutterstock

Focus article by Nurluqman Suratman

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