INSIGHT: China’s new US import tariffs to barely dent polyolefins but re-export concerns

24 August 2018 12:45 Source:ICIS News

SINGAPORE (ICIS)--China has imposed an additional 25% tariff on selected US imports worth of $16bn from 23 August, with high density polyethylene (HDPE), linear low density PE (LLDPE) and polypropylene (PP) products affected.

The latest round of tariff hikes, announced by China’s Ministry of Commerce (MOFCOM) on 8 August, reflect the continuing escalation of the tit-for-tat trade war between the US and China.

To hedge against the risks incurred from the extra tariffs, most traders have decided to sell the affected products, including LLDPE, HDPE film and HDPE blow moulding at lower prices to downstream export-oriented processors and re-export HDPE injection to other regions.

On 23 August, import offers were at $1,100-1,130/tonne CFR CMP (cost and freight, China main port) for LLDPE, at $1,290-1,330/tonne CFR CMP for HDPE film, at $1,270-1,310/tonne CFR CMP for HDPE blow moulding and at $1,190-1,200/tonne CFR CMP for HDPE injection, market players said.

Several of them added that the US HDPE blow moulding and film imports, subject to the additional 25% tariffs, were sold at $1,200/tonne to Chinese downstream export-oriented processors. These processors may purchase feedstock polyolefin in US dollars and directly export the finished products, also in US dollars, avoiding the extra tariffs imposed by China.

But for HDPE injection, there are not so many export-oriented processors in China, and hence, international traders were heard intending to buy back the US products at $1,000-1,050/tonne and divert them to southeast Asia in order to reduce losses.

SUPPLY
The latest tariff increases may affect around 80,000 tonnes of US PE imports to China, including 50,000-60,000 tonnes of HDPE and 10,000 tonnes of LLPDE.

Source:China Customs and USITC

ICIS forecasted before the US-China trade war, that PE exports from North America to northeast Asia would be greater than 2m tonnes by 2020 with new production capacities coming on stream in North America between 2016 and 2020.

In 2017, the US exported 580,000 tonnes of PE to China, according to ICIS supply and demand data. The volume is relatively small, when compared to the 2.5m-tonne monthly PE consumption in China on average, and is thus having limited impact on domestic PE supply.

Nevertheless, market players are more concerned that the tariff hikes will hinder China’s exports of plastics products to their major destination, the US, which will consequently drag down domestic feedstock polyolefin prices.

China polyethylene apparent demand in 2018

Jan-July 2018
unit: 10kt Domestic Import Total
LDPE 160.75 169.5 330.25
LLDPE 405.29 242.6 647.89
HDPE 387.97 393.57 781.54
PE total 954.01 805.67 1759.68

DEMAND
China’s exports of selected polyolefin-made plastics products, subject to the extra 25% tariffs levied by the US as of 23 August, are mainly listed in the HS code heading No 39 (HS code-39).

The affected volume, calculated based on the data from the United States International Trade Commission (USTIC) in 2017 is around 128,000 tonnes. Such a volume is not expected to have a great impact on the market in the short term.

The polyolefin-made plastics product list to which the extra 25% tariffs applied on 23 August

HS code product name volume to US 2017 unit-tonne Value unit 1000 dollars)
391,610 MONOFILAMENT WITH A CROSS-SECTIONAL DIMENSION OVER 1 MM, RODS, STICKS AND PROFILE SHAPES OF POLYMERS OF ETHYLENE, NOT MORE THAN SURFACE-WORKED 5507 8244
391,721 TUBES, PIPES AND HOSES, RIGID, OF POLYMERS OF ETHYLENE 4285 15412
391,722 TUBES, PIPES AND HOSES, RIGID, OF POLYMERS OF PROPYLENE 1224 5589
3,917,31 FLEXIBLE TUBES, PIPES AND HOSES, HAVING A MINIMUM BURST PRESSURE OF 27.6 MPA, OF PLASTICS 2756 21239
3,917,40 HTS - 391740: FITTINGS FOR TUBES, PIPES AND HOSES, OF PLASTICS 15021 96553
3,920,10 PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NOT SELF-ADHESIVE, NON-CELLULAR, NOT REINFORCED OR LAMINATED ETC., OF POLYMERS OF ETHYLENE 57342 150443
3,920,20 PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NOT SELF-ADHESIVE, NON-CELLULAR, NOT REINFORCED OR LAMINATED ETC., OF POLYMERS OF PROPYLENE 15878 61177
3,921,90 PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NESOI, NON-CELLULAR PLASTICS NESOI 25968 221097
total 127981 579754

Source: USITC

However, the escalating trade war and the possibility of further tariff additions will dampen the US buyers’ interest in Chinese plastics products imports, market players said.

Source: National Bureau of Statistics

China’s plastics products output totalled 75.15m tonnes in 2017, of which, 15% or around 11.68m tonnes were exported. The proportion of exports in total domestic output has been declining in recent years, due to expanding domestic demand. However, if the US decides to impose additional tariffs on all the remaining plastics products imports from China listed under the HS code-39, China’s shipments to the US may halt. Market players added that there would be a 2.6m tonne drop in demand, with polyolefin made plastic products accounting for about 67% of the total demand.

Source:China customs and USITC

China’s export value of plastics products under the HS code-39 reached around $71.3bn in 2017, of which, 22.9% or $16.3bn was attributed to the US, according to market sources.

Data from the USITC shows China as the largest plastics products exporter to the US, contributing 35% of the $47bn US import value of plastics products under the HTS code 39. Hence, the lack of Chinese supply would also raise US plastics products prices in the near term.

Polyolefin-made plastics products not yet affected by the additional tariffs under the HS code-39

HS code product name Unit 1000 dollars
392220 LAVATORY SEATS AND COVERS, OF PLASTICS 65390
392321 SACKS AND BAGS (INCLUDING CONES), OF POLYMERS OF ETHYLENE 818705
392329 SACKS AND BAGS (INCLUDING CONES), OF PLASTICS NESOI 248083
392330 CARBOYS, BOTTLES, FLASKS AND SIMILAR ARTICLES, OF PLASTICS 342542
392390 ARTICLES FOR THE CONVEYANCE OR PACKING OF GOODS, NESOI, OF PLASTICS 521117
392410 TABLEWARE AND KITCHENWARE OF PLASTICS 2057733
392490 HOUSEHOLD ARTICLES NESOI (OTHER THAN TABLEWARE AND KITCHENWARE) AND TOILET ARTICLES, OF PLASTICS 1721378
392520 DOORS, WINDOWS AND THEIR FRAMES AND THRESHOLDS FOR DOORS, OF PLASTICS 71462
392530 SHUTTERS, BLINDS (INCLUDING VENETIAN BLINDS) AND SIMILAR BUILDERS' ARTICLES AND PARTS THEREOF, OF PLASTICS 380116
392620 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES (INCLUDING GLOVES, MITTENS, AND MITTS), NESOI, OF PLASTICS 1082426
392630 FITTINGS FOR FURNITURE, COACHWORK OR THE LIKE, OF PLASTICS 168739
392690 ARTICLES OF PLASTICS, NESOI 2696730
total 10174421
source: USITC and ICIS

By Angie Li

By Angie Li