Proposed China tariffs pose minimal immediate concern for US PE market

HOUSTON (ICIS)–US polyethylene (PE) market participants have expressed no great concern so far to proposed Chinese tariffs on imports of certain grades of US PE, among other petrochemical products. Some feel there is a possibility that tariffs may not be imposed, while there is also a belief that the US would be able to move into markets where existing suppliers would divert material to China if duties are imposed.

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“Some of the announcements from both China and the US are intended to create room for negotiations, which means that the tariffs might not ultimately be implemented, and it will, at any rate, take some time before the ultimate fate of the announced tariffs will be finalised,” a trader said.

Another trader said: “The market is smarter than the politicians. US sellers will be able to sell their new cargoes, although the US may end up selling less to China. The market has been expecting new capacity to drive down prices, but this might not happen now that the tariff issue is creating some concern in the market.”

In response to moves by President Donald Trump’s administration to impose duties on imports from China, China announced a tariff on 25% on imports of US low density polyethylene (LDPE) and linear low density polyethylene (LLDPE), among other US products.

The US has been expanding capacities for PE, adding around 3.5m tonnes/year in the second half of 2017, with approximately 1.5m tonnes/year of additional capacity to come online in 2018 (see interactive map and scheduled start-up below).

The US PE market is considered mature with limited growth anticipated in domestic demand for commodity plastics. Therefore, much of the new capacity is intended for export.

“China’s tariff announcement will not affect total world demand for PE. Therefore, while trade flow patterns may see some shifts, we are not worried about the US industry’s ability to place additional volumes,” a producer source said.

According to ICIS data, the US currently exports around 20% of PE production, with Latin America being the primary destination for US exports. Although US exports to Latin America are expected to grow, the US will need to diversify its export destinations to balance its expanding capacity.

China has emerged as the primary target for new US exports, as China has the world’s import requirements for PE. ICIS projects that China will need more than 10m tonnes of PE imports in 2018 to meet its PE demand, with China’s PE deficit expected to grow to more than 15m tonnes by 2025.

“China has been consuming more virgin high density polyethylene (HDPE) after the country banned imports of scrap plastics, which we believe is the main reason HDPE was exempted from China’s tariff announcement,” a consultant said.

“US producers may need to offer lower prices to gain more market share, and other Asian exporting countries like Malaysia and South Korea may end up being the main beneficiaries,” the source added. “Producers are all looking into this issue, but we do not expect any project cancellations as the volumes expected to come online from the second wave of new PE plants has already been mostly committed.”

Additional reporting by Amanda Hay

Focus article by Zachary Moore

Interactive by Tracy Dang