The prospect of how a potential trade war with China could affect petrochemical trade has dominated discussions at the American Fuel and Petrochemical Manufacturers' International Petrochemical Conference, as market participants watch for fallout from sometimes heated rhetoric.
China is a critical market for many US polymer exports, and will become increasingly so through the next decade as Asian demand consistently outstrips domestic supply. S&P Global Platts Analytics data show Asia's polyethylene deficit will surpass 26 million mt by 2028, a gap that imports can fill. The Middle East and North America -- home to the cheapest petrochemical feedstocks in the world -- will be the main global PE suppliers, and the Middle East controls about 80% of the export market into Asia, while North America will compete to increase its market share.
President Donald Trump's imposition of steel and aluminum tariffs and subsequent plan to impose another $50 billion in tariffs on Chinese imports sparked a selloff in US stocks last week, generating concerns that China may retaliate. China's petrochemical imports from the US include PE, polyvinyl chloride, ethylene dichloride, monoethylene glycol and ethylene.
"China is the fastest growing market for petrochemicals," Chevron Phillips Chemical CEO Mark Lashier said Monday during a panel discussion at the San Antonio conference. "We are vulnerable if we block off US petrochemicals from China."
China was the third-largest recipient of US PE in 2017, behind Mexico and Canada, which have been exempted form the steel and aluminum tariffs. China received 465,771 mt of US PE, or 13% of total domestic exports.
China also received 306,079 mt of US polyvinyl chloride exports last year, or 11% of the total.
The CEOs who spoke alongside Lashier echoed his concerns, noting that future petrochemical projects could become more expensive to build amid trade uncertainty.
"We're right to be concerned about how China reacts," Albemarle CEO Luther Kissam said. "A war between US and China will lead to much uncertainty and a lot of risk that won't be figured into projects that are coming along."
Petrochemical producers and traders had mixed views of whether a trade war could emerge. A producer source noted on the sidelines of the conference that much of the 6.3 million mt of new PE capacity coming online from 2017-2019 -- with more to come in 2020 and beyond -- will be exported, as North America is already oversupplied. China remains a critical target for those volumes.
"If China decides to retaliate" with tariffs on those imports, "it will be a tough situation," the source said.
A banker who handles letters of credit for polymers characterized talk of tariffs as saber rattling on the US side
"At the end of the day, business will prevail and they will come to agreement on smaller changes," the banker said, noting China too much invested and too big part of the export equation.
A trader source said if China imposes tariffs on petrochemical imports in retaliation, markets would see disruption for a few months, and then find some equilibrium. But for traders, the source noted, volatility opens opportunity to improve profits.
"For a trader, all these disruptions, they're good for us," the source said.
