Europe PE market ponders effect of China-US tariffs, confusion on some grades

17 August 2018 12:32 Source:ICIS News

LONDON (ICIS)--European polyethylene (PE) players – producers, traders and buyers – are trying to work out how tariffs slapped on US polyethylene (PE) into China might affect them.

HDPE added to tariffs list, but confusion on LLDPE

- Strong dollar preventing US product coming to Europe

Potential new opportunities for Middle East, European sellers

A European buyer said that “everyone is focused on Asia” as the trade war between the US and China gains steam.

“It’s caught us by surprise,” the buyer added.

The thing that seems to have caused most confusion is the addition last week of some products to the original list.

“High density [high density polyethylene, HDPE] wasn’t on the list before. This is what’s causing the mess,” said the buyer.

On the other hand, low density polyethylene (LDPE) was omitted from the updated most recent list.

Linear low density polyethylene (LLDPE) was the product where most confusion seemed to reign, with sources unsure of whether metallocene grades were included.

There has been some immediate effect as buyers with US product moving towards China have simply turned cargoes around to avoid the hefty increased duty imposable on PE.

In spite of the new situation with US PE exports, and the sharp drop in FOB (free on board) levels from the US, there is not much available for European traders at workable levels.

“The US dollar is super strong at the moment. There’s no material coming in [to Europe] with the dollar like this,” said a LLDPE trader.

US sellers did not seem to have adjusted their offers.

“Price-wise, they [offers from US] are still far above where we need,” said an HDPE trader.

“They have to realise that for Europe they will need to change.”

Europe has been beset by low net spot prices and some remain below the August headline ethylene contract price of €1,135/tonne FD (free delivered) NWE (northwest Europe).

The low end of spot ranges in Europe is often for local European material, as traders are unable to get hold of imports at such levels.

Sources have been saying for some time that European prices would have to increase if Europe is to receive the imports it needs in several PE grades.

LLDPE, in particular, is heavily dependent on imports, and some HDPE grades also need imported volumes for the market to function.

“There has been some immediate confusion. We can expect more volumes, but not everything can come to Europe. There will be a rearrangement of trade flows,” said a producer.

One impact of the situation, coupled with the weak euro/dollar rate, could be for Europeans to export more.

Clearly, there will be opportunities for Middle Eastern suppliers to fill the gap left empty by US product.

A very large increase in PE production in North America will complicate the situation, and it will take time for material to find its place.

It was not clear how much progress could be made as a Chinese delegation travelled to the US this week.

Some sources said they were not that hopeful of any decisions being made that would reverse the situation imminently.

PE is used in packaging, the manufacture of household goods, and also in the agricultural sector.

Pictured: A container ship at the Port of Qingdao in northeast China
Source: Imaginechina/REX/Shutterstock

Focus article by Linda Naylor

By Linda Naylor