Asia petchem markets brace for escalation of US-China trade war

Author: Pearl Bantillo


SINGAPORE (ICIS)--Petrochemical trades in Asia turned largely cautious this week, after the US issued a threat to hike tariffs on $200bn worth of Chinese goods to 25% on 10 May, including chemicals and plastics, with China vowing to respond with countermeasures.

(Source: Xinhua/REX/Shutterstock)

Regional prices of some petrochemicals were stable to softer as buyers retreated to the sidelines.

There is a general concern that demand from China – a key petrochemical importer in Asia –  will weaken further as a direct result of the escalation of the trade war between the two economic giants.

In the acrylonitrile butadiene styrene (ABS) market, spot prices have fallen below $1,500/tonne CFR (cost & freight) China for some brands, while others traded in the mid-$1,500/tonne CFR China levels.

Demand for ABS - which is used in automobiles, electronics, appliances and recreational products - will be directly hit when tariffs on made-in-China appliances are imposed.

In the polycarbonate (PC) space, bearish sentiment generated by the expected escalation of the US-China trade war, was exacerbating downward price pressure in a market where supply is outpacing demand.

Similar concerns were also stalling trades in the butadiene (BD), polyester staple fibre (PSF) 1.4 denier (D) and metallocene linear low density polyethylene (MLLDPE) markets.

In China’s adipic acid (ADA) market, however, producers downplayed any potential impact of the impending US tariff hike, citing limited export exposure to that market.

The same is true for Chinese styrene butadiene rubber (SBR) makers.

“There is no impact on the SBR market as China does not export SBR to the US. China is not anxious whether there is a deal or no deal, although our stance is that a deal will be good for the global economy,” a Chinese SBR producer said.

Months of dialogues between the US and China appear to be falling apart, even as high-level Chinese delegates are due to discuss a possible deal in Washington on Thursday.

Market players are not optimistic of a positive outcome to the discussions.

“[The] US is hardening its lines to force China to change its practices on subsidies and intellectual property, but China may still insists its current position, which is not to give up,” said Wang Qiang, senior analyst at Shenzhen-based brokerage China Merchant Securities.

“So, this week’s negotiations may again come out with no agreement,” Wang said.

The US has held off its planned hike in tariff rates on $200bn worth of Chinese goods from 10% to 25%, which was originally supposed to take effect in January 2019, as intensive discussions with China was underway, pushing back the implementation date to March.

The two countries cited good progress in the discussions that the March deadline was further relaxed, until the surprise Twitter message from US President Donald Trump on 5 May on the tariff hike.

Trump further threatened to impose 25% tariffs on additional $325bn worth of goods from China.

In April, China’s exports fell 2.7% year on year to $193.5bn, with those to the US down 13.2% at $31.4bn; overall imports increased 4.0% to $179.7bn, with those from the US reduced by more than a quarter to $10.3bn.

The Chinese economy, which is the world’s second biggest after the US, is expected to weaken further this year, with GDP growth projected at 6.0-6.5%, down from the 28-year low of 6.6% posted in 2018.

It may have to step up measures to stimulate its domestic economy to prevent a sharp deceleration in growth amid an expected escalation of the US-China trade war.

“China is expected to further ease its monetary policies as [a] mitigation [measure],” said China Merchant Securities analyst Wang.

The People’s Bank of China announced on 6 May that it would lower the reserve requirement ratio (RRR) of small banks from 15 May, even though it stated in the previous month that monetary policy would remain prudent.

The latest RRR cut would release some yuan (CNY) 280bn of liquidity into its financial system.

“That means we’re taking very flexible policies to counter headwinds – we don’t rule out the possibility of interest rates cuts,” Wang said.

Focus article by Pearl Bantillo

Additional reporting by Fanny Zhang, Melanie Wee, Clive Ong, Helen Yan, Eric Su, Leanne Tan and Judith Wang

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