Asia petchem shares fall as new round of US-China tariffs looms

SINGAPORE (ICIS)–Shares of major Asian petrochemical firms were trading mostly lower on Thursday, tracking declines in global equities this week, as investors were wary about the potential impact of a fresh round of US tariffs on Chinese goods.

At 04:00 hours GMT, Japan’s Mitsui Chemicals fell 0.25% and JXTG Holdings was down by 0.97% as the benchmark Nikkei 225 Index dipped 0.46% to 22,477.51.

In South Korea, LG Chem was down by 0.56%, while in Taiwan, Formosa Petrochemical Corp (FPCC) was 1.21% lower.

In Hong Kong, the Hang Seng Index fell by 0.58% at 27,087.15.

In southeast Asia, Thailand’s PTT Global Chemical was down by 0.63% and Malaysia’s PETRONAS Chemicals Group inched up by 0.53%.

The public consultation period for the latest round of proposed US tariffs on $200bn additional Chinese good ends on 6 September, and they could technically take effect immediately thereafter. It is not yet clear if the tariffs will be set at 10% or 25%.

This third round of US tariffs would represent a further escalation of the trade war between the world’s two-biggest economies, which began exactly two months ago.

On 6 July, the US fired the first shot by imposing  25% tariffs on $34bn worth of imports from China, followed by another round of tariffs slapped on additional $16bn Chinese goods on 23 August  – to which China has responded in kind.

A number of Chinese petrochemical products are included in the second round of US tariffs, with finished plastics included in the third round.

“If these additional US tariffs go though, then Beijing will likely retaliate with additional 5-25% tariffs on $60bn of imports from the US, which implies nearly all of US goods exports to China (based on 2017 data) will be subject to tariffs,” Singapore-based UOB Global Economics & Markets Research said in a note.

China’s retaliation so far to the US tariffs implemented so far this year has nearly exhausted the range of US imported goods that could be penalised, said Charles Duman, an analyst at London-based research firm TS Lombard.

The proposed 25% tariffs on the bulk of US imports from China would damage China’s trade enough to provoke over the next six months or so of a further 15% depreciation of the Chinese yuan (CNY), on top of the near-8% decline since May, Duman said.

“Such a shift in rates would create major problems for Japan and Korea, and for the emerging-market world in general that has already seen a number of rivets popping (Turkey, Argentina, soon Brazil perhaps),” he said.

“Even the euro would probably be pulled down in sympathy, partly as a typical ‘risk-off’ reaction, partly by impaired export competitiveness.”

The US on 5 September reported that its July trade deficit widened further to $50.1bn from the $45.7bn in June, marking the biggest monthly increase in almost 3.5 years. The trade deficit with China in July hit a record $36.8bn even after US put tariffs on Chinese goods.

The direct economic effects of the US-China tariff dispute have been limited so far, S&P Global Ratings said in a note late on Wednesday.

“That may be about to change as the countries escalate their rhetoric – and their actions – in what could soon be a full-blown trade war,” the ratings firm said.

An escalation to the trade war with the imposition of the 25% tariff could shave roughly one percentage point of US GDP by 2021, according to S&P Global Ratings.

For China, the loss to GDP would be around six-tenths of one percent, it said.

“Attempts to help those hurt by globalization via higher tariffs or other forms of protectionism, even if well-meaning, will raise prices and hurt all  consumers, especially poor and middle-class families,” said S&P Global Ratings’ US senior economist Satyam Panday.

“Not to mention damage the competitiveness of companies that import raw materials and components from other countries and folks who work in export industries.”

Focus article by Nurluqman Suratman

Additional reporting by Jonathan Lopez

Picture: Jiangsu port in China (Source: Sipa Asia/REX/Shutterstock)

Click here to view related stories and content on the US-China trade war landing page