China’s levy of new tariffs to have little impact on US MEG imports

Cindy Qiu

10-Aug-2018

SINGAPORE (ICIS)–China’s decision to levy an additional 25% tariff on $16bn worth of US-origin goods starting from 23 August will have a limited impact on monoethylene glycol (MEG) imports in the near term, market players said.

China imported 8.75m tonnes of MEG in 2017

Imports from US were just 183,000 tonnes, or 2.1% of total imports

China tariff on US origin MEG will be higher than 30%

The finalised second list of US imports subject to the extra tariff announced by China’s Ministry of Commerce (MOC) late on Wednesday includes a majority of chemical raw materials. MEG, a key feedstock for the chemical fiber industry is also on the list.

The tariff rate on MEG imports, originating from the US will be higher than 30% after this adjustment.

China is heavily reliant on MEG imports.

According to ICIS data, China produced 6.28m tonnes of MEG in 2017 and imported 8.75m tonnes, with its import reliance rate at around 60%.

However, the US is not a major MEG supplier to China.

Data from China Customs showed that of the 8.75m tonnes of MEG imports in 2017, only 183,000 tonnes, or 2.1%, came from the US.

Its share registered a rises in January-March 2018, at 3.4%, but it remained at a relatively low level.

Hence, market players said the additional tariffs on US imports would make a little hit on China’s MEG supply.

The US currently has around 2m tonnes of MEG capacity, with 2.5m tonnes expected to start up in 2018-2019, according to ICIS.

Most of the new products are originally targeting Asia, which is the world’s largest polyester producing and consuming region, with China being a major destination.

China’s imposition of the extra tariffs might prompt some US suppliers to turn to other markets to sell, and therefore dashing Chinese polyester producers’ hopes of gaining a stronger bargaining power in 2019 contract negotiations on MEG imports.

Some market players said that the US MEG producers might be able to mitigate the risks from higher tariffs by allocating supply from their global operations.

For instance, they might divert some of their new products to regions other than China and sell the products from the plants outside the US to China.

These producers have not yet made any immediate comments on it.

In the medium-to-longer term, the additional tariffs are poised to affect China’s MEG imports, with many new capacities coming on stream in China in next few years, but how the import pattern will change remains uncertain.

Focus article by Cindy Qiu

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