HOUSTON (ICIS)--Market players are contemplating the long-term impact of China's upcoming tariffs on US monoethylene glycol (MEG), especially as new US capacity is slated to come online in 2019.
China will begin imposing 25% tariffs on $16bn of US goods starting 23 August, with the list including MEG.
This is listed as 1,2-ethanediol (harmonised code 29053100) and is part of the second wave of tariffs that the US and China are implementing against each other.
"I am not sure how this will affect the domestic market yet," a source said. "It will be interesting to see how this plays out for the balance of the year."
US vessels already bound for China are facing extra costs if they arrive after 23 August.
But the decision will have a limited impact on MEG imports in China in the near term as imports from the US are just 2.1% of total imports.
The US is unlikely to use all of the new capacity and was expected to shift from a net importer to a net exporter, with at least 1m tonnes of capacity scheduled to start up next year.
US suppliers may be able to mitigate the risks from higher tariffs by moving material into China from other countries through re-exports or swaps.
They could also turn to other markets to sell their product, although it is unclear if those markets could absorb all of the material as Asia currently consumes the largest volume of MEG globally.
The new capacity was expected to put downward pressure on prices, giving buyers stronger bargaining power in 2019 contract negotiations.
"Actual pricing itself may not change that much, but the new capacity is expected to factor into contract discussions as market players anticipate a trough," a source said.
But upcoming production could be pushed back to a later date or run at lower rates if supply gets too long, according to market information.
Major glycol producers in the US include Eastman Chemical, Huntsman, Indorama Ventures, LyondellBasell, Nan Ya Plastics, Shell Chemical and MEGlobal.
Focus article by Tarun Raizada
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