Proposed Chinese tariffs to hit US LLDPE, LDPE as plants ramp up

04 April 2018 17:36 Source:ICIS News

HOUSTON (ICIS)--The tariffs that China has proposed against US products include polyethylene (PE), which could deny producers the key market they planned to target just as they are starting up several plants that will produce the resin.

Packaging like this is often made with low density polyethylene (LDPE). Photo credit by Al Greenwood

The code for the PE being targeted by Chinese tariffs is 39011000, polyethylene with a primary shape specific gravity of less than 0.94.

These tariffs would be 25% and cover medium density PE (MDPE), all grades of low density PE (LDPE) and most grades of linear low-density PE (LLDPE), said James Ray, senior consultant at ICIS. It would exclude high-density PE (HDPE).

Currently, only 6% of US exports of LDPE and LLDPE go to China, and half of these are specialty grades, according to Bernstein Research.

However, that figure could rise quickly as US producers start up new plants.

From the time that these plants were first announced early this decade, they were premised on cheap feedstock and exports to Asia Pacific.

US demand growth for PE would be too slow to absorb all of the extra resin that these plants will produce. Repeatedly, producers said Asia Pacific would be the main export market for these new plants, particularly China. Demand in the region is already high and growing fast, providing the plants with a large and growing market for their resin.

The table below lists the PE projects that have either started up or could start up through the early part of the next decade.

Company Capacity (kt/year) Grade, breakdown Location
Dow Chemical 400 ELITE PE Freeport, Texas
Dow Chemical 350 LDPE Plaquemine, Louisiana
Chevron Phillips Chemical 1,000 Bimodal HDPE (500), mLLDPE (500) Old Ocean, Texas
ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas
INEOS/Sasol 470 HDPE La Porte, Texas
Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas
Dow Chemical 125 Bimodal HDPE/MDPE Seadrift, Texas; St Charles, Louisiana
Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana
LyondellBasell 500 HDPE La Porte, Texas
ExxonMobil Chemical* 650 PE (unspecified) Beaumont, Texas
Total/Borealis/NOVA* 625 Borstar PE Bayport, Texas
Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania
PTT Global Chemicals* 700 HDPE (2x 350) Belmont County, Ohio
NOVA Chemicals* 430 LLDPE Sarnia, Canada

* No final investment decision (FID)

China's proposed tariffs would hit much of the new capacity. Dow's Elite PE could also be covered, since its density is less than 0.94g/cubic cm.

Stocks of US-listed companies that make PE fell by more than the general market during late-morning trading.

Westlake Chemical was down by more than 3%. Westlake also makes polyvinyl chloride (PVC), another target of the proposed tariffs.

LyondellBasell was down by nearly 3%. DowDuPont was down by more than 1%.

For comparison, the S&P 500 was down by less than 0.50%, and the Dow Jones Industrial Average was down by less than 1%.

Any tariffs from China are not a done deal. Negotiations could reduce or even eliminate them before they go into effect.

By Al Greenwood