US PE exports shift to Southeast Asia, Africa

US polyethylene (PE) exports are expected to continue increasing to high growth regions such as southeast Asia and Africa in 2019 as volumes to China decline precipitously in the face of tariffs.

The trade data is limited, going only through October 2018 so far, but a clear pattern has emerged.

US exports of the two grades of PE under tariff – high density PE (HDPE) and linear low density PE (LLDPE) – to China plunged by 55% from July 2018 to October 2018, according to the latest data from the US International Trade Commission (USITC) compiled by consultancy Accenture.

“However, higher growth regions in Vietnam, Malaysia, Indonesia and Africa have taken up more than that share.

Vietnam in particular is seeing strong exports of finished goods,” said Paul Bjacek, chemicals research lead at Accenture.

The second round of China tariffs, which targeted US HDPE and LLDPE, were implemented in August 2018 – thus the comparison from July figures to the latest data in October.

Looking at all US PE exports (including LDPE which is not under tariff), monthly exports to China fell by 48,000 tonnes (-62%) from July to October. However, US exports to the southeast Asia countries of Vietnam, Malaysia, Singapore and Indonesia rose by 78,000 tonnes (+238%), according to an analysis by Accenture.

LIMITED WINDOW IN SE ASIA

In southeast Asia, the US will have a limited window in which to grow PE exports, as certain countries are set to build significant new capacity in the coming years, the consultant noted.

“Malaysia is expected to turn into a net exporter from 2021 on the start of the PETRONAS RAPID project,” said Bjacek.

PETRONAS is set to add 350,000 tonnes/year of LLDPE and 400,000 tonnes/year of HDPE by the end of 2019 with commercial operations starting in 2020.

In Indonesia, Chandra Asri is adding PE capacity by 2020, and by 2023, Vietnam should have its first cracker with downstream PE units producing, Bjacek noted.

Chandra Asri will have 400,000 tonnes/year of HDPE/LLDPE capacity, while Vietnam’s Long Son Petrochemical’s integrated project includes a 450,000 tonne/year HDPE plant.

“Others increasing US imports over 50% between July and October include Pakistan, Thailand, India and Bangladesh,” said Bjacek.

The consultant recommends polymers producers “spec in” their material for more performance applications to mitigate supplier switching in these high growth regions, which can be future winners versus China.

EXPORTS TO AFRICA, LATAM

Africa as a destination also saw a net gain of 17,000 tonnes (+153%) of US PE imports in October versus July while Latin America (excluding Mexico) absorbed an additional 21,000 tonnes (+13%) of US material.

“In Africa, medical plastics is a high growth area, and there is growing investment in the polymer processing industry,” said Bjacek.

“In 2019, higher growth markets should be able to absorb higher US PE exports. Manufacturers with capacity in the US are more focused on developing non-tariff markets,” he added.

Even if the US-China trade talks are successful and tariffs eventually removed, US exporters will have more choices, having developed new markets.

US EXPORTS SURGE

“The US is still a low cost producer with significant new capacity. The US already exports PE to dozens of countries and is simply sending a few extra percentage points of supply to those, many of which offer a better netback than China,” said James Ray, senior consultant at ICIS.

US PE exports have surged in 2018 as new capacities have started up. From January-October 2018, US ethylene polymer (PE and ethylene copolymers) exports jumped 31% compared to the same period last year to 5.88m tonnes. Exports in October 2018 were 706,000 tonnes, up 64% year on year, according to the Accenture analysis.

“The global economics of PE have not changed. The US exports to dozens of countries and already have established channels. And when you bring on a huge amount of capacity, there are always going to be issues, with or without China tariffs,” said Ray from ICIS.

China will still have to import massive amounts of PE, including significant volumes from the US. When the US and China resolve these trade issues, China demand will snap back quickly, he pointed out.

MIDDLE EAST, INDIA FILL VOID

China from the August-October 2018 period imported more PE from the Middle East and India, making up for the decline in US imports, Accenture’s Bjacek noted. Overall China PE imports averaged 818,000 tonnes per month in that period, up 7.4% year on year.

“China has a voracious appetite for PE but also some of the highest flexibility and latitude” in changing polymers for end products, as there are less regulatory restrictions for end products, Ray from ICIS noted.

CHINA UNIT VALUE ANALYSIS

Analysing China HDPE import unit value (dollar values of imports divided by volumes) by origin through the July-October period, prices declined from almost all major regions of origin, according to the Accenture analysis.

However, US origin values actually rose in October after dipping in September, bucking the trend.

“The increase in unit values of PE shipped to China suggests some plastics processors in China may not be able to switch suppliers of certain grades too soon, especially for performance applications, as their machinery may likely have been calibrated to certain supplier grades,” said Bjacek.

The analysis of the latest trade data through October 2018 provides some insights, but this was before the financial market turmoil accelerated through December and early January 2019, along with a severe decline in crude oil prices.

It is likely unit values fell further in all regions since the latest data.

Greater visibility on global PE trade flows should arrive in the upcoming fourth-quarter earnings conference calls of producers, as well as trade data for November, December and January.

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Cover photo credit: Alamy