UPDATE: Oil gains, Asia petrochemical shares fall as Trump starts trade war
Nurluqman Suratman
03-Feb-2025
SINGAPORE (ICIS)–Oil prices jumped while shares of petrochemical firms in Asia tumbled on Monday, after US President Donald Trump imposed tariffs on China, Canada and Mexico.
- Canada, Mexico vow to retaliate against US tariffs
- China warns of unspecified countermeasures
- Trade war jitters send Asian bourses tumbling
Trump signed on 1 February executive orders on the tariffs, firing the first shots of a potential new trade war, just days into his presidency.
Prices in $/bbl as of 06:12 GMT) | Latest | Previous | Change |
Brent April | 76.41 | 75.67 | 0.74 |
WTI March | 73.94 | 72.53 | 1.41 |
US WTI crude rose by more than $1/barrel amid fears of a disruption in crude supply from two of the US’ largest suppliers – Canada and Mexico.
Effective 4 February, the US will apply a 25% duty on goods from the two countries, while a 10% levy applies on Chinese goods.
Following the announcement, Canada and Mexico declared their intentions to retaliate against the tariffs, while China pledged to challenge the US tariffs at the World Trade Organization (WTO).
For the Canadian energy sector, the Trump administration decided to impose a tariff of only 10%.
Canada is a key supplier of crude oil to the US, with the US importing around 4 million barrels/day from Canada or 61% of total imports.
This crude oil is a heavier crude, on which many US refineries are configured to run on, particularly in the midwestern region of the country, according to Dutch banking and financial information services provider ING.
“Given the importance of Canadian oil to the US, it is not surprising to see that WTI is trading stronger this morning,” ING said.
In a statement on 1 February, American Fuel & Petrochemical Manufacturers (AFPM) president and CEO Chet Thompson said: “American refiners depend on Canadian and Mexican crude oil to produce the affordable, reliable fuels consumers need every day.”
“We are hopeful a resolution can be quickly reached with our North American neighbors so that crude oil, refined products and petrochemicals are removed from the tariff schedule before consumers feel the impact.”
ING said: “More broadly, an escalation in trade tensions is not supportive for risk assets with it souring sentiment and raising concerns over the impact it could have on global growth, which means the strength in crude oil prices may be short-lived.”
“The strength in the US dollar will also likely provide some headwinds not just for oil but the broader commodities complex.”
The dollar index, which measures the strength of the US dollar against six major global currencies, rose to 109.60 in early trading on Monday, up from 108.370 in the previous session.
The stronger US dollar saw the Indian rupee (Rs) plunging to a record low of Rs87.1450 on Monday, breaching the Rs87-per US dollar mark for the first time. Since October last year, the rupee has lost nearly 4% of its value.
Japan’s yen (Y) was more resilient, losing 0.2% to Y155.53 per US dollar.
EYES ON CHINA
Apart from filing a complaint with the WTO,
China’s commerce ministry announced that it
would take unspecified countermeasures to US’
fresh tariffs.
No immediate tariffs were announced as the world’s second-biggest economy is in the middle of its Lunar New Year holiday, with its markets due to re-open on 5 February after an eight-day break.
“Seeing that the tariff hike is with an additional 10%, which is relatively small – don’t forget that tariffs against Chinese goods entering the US have been in place for the last 7 years – we expect that the initial retaliation from China’s side is likely to be mild,” ING said.
“We do feel that if pushed into a corner, China’s retaliation could be stronger than what most expect, but at this stage we haven’t reached that point yet,” it added.
“Overall, the path to avoid a more destructive US-China trade war is a narrow one.”
ING expects “a very modest impact on China’s growth” from Trump’s initial move.
In 2024, China’s exports to the US grew by 4.9% to $524 billion, bringing its trade surplus with the US to $360 billion, partly due to some front loading of exports toward the end of the year ahead of promised US tariffs, according to ING.
“Another 10% tariff will further squeeze low margin exports to the US and likely will price out a portion of exports,” ING said.
“The more vulnerable sectors will likely be those with easy replacements, such as textiles and certain electronics and machinery goods.”
Separately, the 25% tariff hike on Mexico will disrupt one of China’s primary export re-routing channels, according to ING.
As a result, China may redirect exports to alternative markets, such as ASEAN and Latin American countries, if the US tariffs on Mexican goods remain or escalate, it said.
“China is likely to focus on boosting trade ties with other countries to help offset a more protectionist US,” ING added.
Trade war jitters sent bourses in Asia tumbling along with shares of petrochemical firms on Monday.
At 06:00 GMT, Japan’s Mitsui Chemicals and Asahi Kasei was down 2.96% and 3.17% in Tokyo, respectively, while South Korean producer LG Chem slumped by 6.53% in Seoul.
Japan’s benchmark Nikkei 225 index was 2.0% lower at 38,686.96, while South Korea’s KOSPI fell by 2.80% at 2,446.46.
Taiwan’s Formosa Petrochemical Corp fell by 6.00% in Taipei, while Thailand producer PTT Global Chemical was 2.33% lower in Bangkok.
On the first trading day after the Lunar New Year holidays, Taiwan’s benchmark TAIEX slumped by 3.56% to 22,689.05, while South Korea’s key KOSPI fell nearly 3.00% at 2,443.10.
Hong Kong’s Hang Seng Index fell by 1.07% to 20,008.78, while Japan’s bellwether Nikkei 225 was down by 2.75% at 38,485.37.
Focus article by Nurluqman Suratman
(updates stock and oil prices, adds details throughout)
Thumbnail image: At Qingdao Port in Shandong province, China on 29 January 2025. (Costfoto/NurPhoto/Shutterstock)
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