US-China trade war creates uncertainty for processors

The intensification of the trade war between the US and China is creating uncertainty regarding demand for Chinese finished plastic goods and the country’s resin processing industry, participants stated on the sidelines of this year’s CHINAPLAS.

“Some of the large-scale retailers in the US have put in order stops on their contracts with Chinese processors for finished plastic goods, which has been one of the key factors weighing down polyethylene (PE) prices in the country,” a PE producer source said.

There is some talk about processing industries relocating to countries such as Vietnam and India, although the market is likely to face short to medium term disruptions as relocating factories is difficult, another source said.

“No other Asian country at the moment can match China in terms of its capabilities at large-scale production of finished plastic goods,” the source added.

At the same time, the trade war is also creating some questions as to where US resin manufacturers are going to place their additional volumes.

The US PE industry is currently undergoing a massive expansionary phase.

The US increased its PE capacity by approximately 3.5m tonnes/year in 2017 and is set to add nearly 3m tonnes/year of additional PE capacity this year.

Further capacity additions are either planned or currently under construction, with the boom in US PE production set to continue into the early 2020s.

As the US PE market is considered mature and is not likely to expand beyond rates of GDP growth, the bulk of the additional product will be targeted at export markets.

Prior to the trade war, China seemed the most logical destination for new US PE production.

China is expected to remain by far the world’s largest net importer of PE while traditional US export markets such as Latin America are not growing fast enough to absorb all the additional new capacity coming on-line in the US Gulf.

Additional tariffs on US PE resins are already causing adjustments to trade routes.

“We had been hoping to raise our exports to southeast Asia but are finding it hard to place volumes there as US product has been shifting from China to Southeast Asia and it has made it difficult for us to compete in the region,” an Indian PE producer said.

LDPE TRADE SLOWING

The trade in US low density polyethylene (LDPE) to China is slowing. LDPE has not yet been subject to an additional tariff, but buyers are reluctant to take US product now for fears that LDPE may be subject to additional duties if the trade war continues to intensify, a trader stated.

PE is the most widely used plastic in the world, primarily found in packaging including plastic bags, plastic films and geomembranes. ■