US-China tariff threats begin to shift EDC, PVC trade flows

HOUSTON (ICIS)–The tariff threat by China on US ethylene dichloride (EDC) and polyvinyl chloride (PVC) has slowed buying activity of those materials from the US in parts of Asia and is altering trade flows as market participants move to avoid becoming collateral damage.

Customers in China are avoiding buying US EDC, though a parcel or two was transacted in the last week of April. Because of the nature of the trade threats and the fast and unexpected ways they would be implemented, they could pose additional – or even prohibitive — costs on parcels that are in transit.

“It takes two months [for US EDC] to ship to China,” said one market participant describing the sentiment. “So if tariffs are slapped on, then buyers might have to pay when it arrives.”

The chill on buying activity is getting attention in the US as China is the destination of 11% of US PVC exports and 28% of US EDC shipments.

“With the stakes like this, no one is going to win,” said a representative of a US PVC producer. “The question now is how bad will it get?”

Because global supplies of EDC and PVC are roughly balanced, the most likely outcome is a shifting among buyers and sellers that will alter the usual trade flows.

Some of that movement is already happening.

More US PVC is being offered at aggressive prices into the Gulf Cooperation Council (GCC) region of the Persian Gulf and more US EDC is shifting toward transactions to Indonesia, Thailand and India.

“Currently, the availability of US material is very high,” a trader working in the region said last week. “More US PVC has been entering the GCC these last few weeks.”

In return, more regional players in Asia are offering those materials into China to replace the lost US flows.

EDC appears to be the commodity more affected.

About 40% of the EDC imported into China in February originated in the US. US EDC exports to China account for about 28% of the nation’s EDC shipments in 2017, according to data from the International Trade Commission (ITC).

The trade conflict is likely having an effect on prices, too.

In the past month, EDC prices to northeastern Asia are up about 19% on a cost-and-freight basis, while those to southeast Asia are up about 9%.

Amid short supply in the US Gulf in February and March, prices increased slowly on a free-on-board basis, but they rose higher by 23% during April after the proposed tariffs were announced.

China’s tariff proposals are in retaliation against US tariffs proposed on Chinese shipments to the US.

The first of two retaliatory announcements was for 15% and aimed at 128 US products. When the US responded with further items to be subjected to tariffs, including automobiles, airplanes and soybeans, China responded with another 106 items targeted by 25% tariffs, including several chemicals.

The rapid-fire announcements spooked financial markets, sending stock indices in the US down sharply.

Many of the products on the China list of targeted items are chemicals. China is the US’s third-largest trading partner for chemicals after Mexico and Canada.

China’s proposed tariffs have been chosen for calculated political effect, targeting farmers, auto manufacturers and chemical companies.

Major US PVC  producers include Occidental Chemical, Westlake Chemical, Shintech and Formosa Plastics. Olin, Westlake and Occidental export EDC, as well.

Focus article by Bill Bowen

With additional reporting by Danielle Goh and Jonathan Chou.