Chinese Duties Would Hit US Chemicals
The looming trade war between the US and China – in particular, China’s proposal to impose tariffs of 25% on $50 billion worth of US imports – could have serious repercussions for the US petrochemicals and plastics industry.
Plastics processing machinery and equipment would also be hit by the levies, thus disadvantaging US plastics converters, many of whom buy the cheaper Chinese machinery. The People’s Republic is now a net exporter of plastics processing equipment.
According to estimates, about 40% of the US-made products subject to the new tariffs would come from the chemicals and plastics sector. China imported plastic resins worth $3.2 billion from the US in 2017, around 11% of total output.
The People’s Republic is also the third largest market for chemicals produced in the United States, according to US Department of Commerce figures published by the American Chemistry Council (ACC).
Commenting on the trade war maneuvers, ACC President Cal Dooley said market shifts caused by the tariff increases may convince US companies to invest outside the country, as the economics of new petrochemical projects planned were based on existing tariffs.
The ACC urged both the US and Chinese governments to “come to a satisfactory and mutually beneficial decision” before the situation escalates further. “Engaging in a trade war with one of our country’s most significant trading partners, is not the answer,” Dooley said.
For many American petrochemicals and plastics players, the economics of new plant construction were already threatened by the 25% levy on Chinese-produced steel proposed by President Donald Trump.
Jim Fitterling, CEO-designate of the new Dow – the materials company due to be split from DowDuPont in mid-2018 – said earlier that the tariffs on steel could strengthen the case for investment in new plants in countries such as Argentina or China rather than the US.
The Chinese duties will likely deal a severe blow to US polyethylene exports to the People’s Republic. A sizable share of the PE output of the many shale gas-fed production facilities currently being built or recently started up on the Texas and Louisiana Gulf coasts is bound for Asia, including China, where the commodity plastic has been short.
In planning their Gulf plants, many producers calculated strong profitability from their cost-advantaged production and potentially higher prices in Asia
The 58-page list of US products subject to the 25% levy covers MDPE, LDPE and most grades of LLDPE, but reports say HDPE is unaffected. The engineering polymer polycarbonate is also on the list as is acrylonitrile.
According to one estimate, US ethylene capacity is due to rise by 39% up to 2019 and PE capacity by 42% in the same period. Analysts believe that domestic demand alone will not be sufficient to support all of this new capacity, and – if the Chinese duties become reality – American producers will have to find new outlets.
