APLA ’18: US-China tariff tiff could send some additional material to Latin America

CANCUN, Mexico (ICIS)–The threat of recently imposed and currently proposed tariffs will affect the margins of the US economy, but may also reroute some trade flows to Latin America, ICIS consultant James Ray said at a roundtable at the Latin America Petrochemical Association (APLA) annual meeting.

The current US tariffs proposed will add $50bn in cost to US imports from China, Ray said. But that will add less than 1% of cost to the average US household and add less than 0.3% to the estimated $19tr US economy.

“Increased US prices are more of a threat to the US economy as US producers compete in a higher price environment,” Ray said.

Chinese tariffs against US material may cause some US exporters to seek alternative markets in Latin America, as well as in global markets around the world, Ray said.

That may increase competition for Latin America producers and pressure margins to a small degree.

The tariff increase will also likely be disruptive to those companies that are most directly affected, including traders, some particular buyers and with some impact to consumers.

The US has implemented tariffs of 10% against $200bn in China exports to the US. The US has said that it will raise the tariffs to 25% on 1 January.

China has imposed retaliatory tariffs against a number of US chemical exports, including linear low-density polyethylene (LLDPE).

That is significant because producers in the US producers plan to expand LLDPE production capacity by 37% by 2020, according to the ICIS Global Supply & Demand database.

The US already exports 48% of the LLDPE produced annually, indicating that the capacity expansions are geared to support export sales.

While 4.6% of US LLDPE exports went to China in 2017, that represents only about 2.6% of total US production. China consumes about 2% of global LLDPE exports, Ray said.

That means that US exporters should be able to find alternative markets without much disruption.

Some of that material will head to Latin America, but also be disbursed to many other markets, Ray said.

“Most will go where it is planned and sellers will be willing to take slightly lower margin for some sales,” Ray said. “The thing you have to remember is that the whole world has been holding back on expanding polyethylene production with this wave of new capacity coming in the US.

“So the whole world needs some of this polyethylene.”

The APLA annual meeting runs through Tuesday.

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