Houston — China has more than 9.2 million mt/year of new US polyethylene capacity in the crosshairs of escalating trade tensions with the US, the American Chemistry Council said Wednesday, making all grades subject to tariffs when most or all are bound for export -- largely to Asia.
The US will impose $16 billion in tariffs on Chinese products on August 23, the second round of $50 billion in such tariffs in addition to steel and aluminum tariffs imposed in March. China said it would impose $16 billion in retaliatory tariffs on the same date, including $2.2 billion in chemicals and plastics.
The second round includes Chinese tariffs on three grades of US-origin polyethylene: low density (LDPE), linear low density (LLDPE) and high density (HDPE), according to the ACC. An earlier version of China's $16 billion list included just LDPE, which makes up about 20% of the 9.2 million mt/year of known US polyethylene capacity starting up in from 2017 through 2020 and beyond.
However, the ACC released a revised list of the $16 billion in retaliatory tariffs on Wednesday that included LLDPE and HDPE, which make up 42.4% and 37.3% of the new PE capacity, respectively. The list also includes other resins and chemicals, such as polyvinyl chloride, ethylene dichloride, acrylonitrile and phenol, as well as naphtha, gasoline, diesel and liquefied propane and methanol. "If you're shipping anything to China you'd better stop," a trader source said.
Officials have yet to specify whether cargoes already in transit could be affected. And some products, like PVC, already face anti-dumping duties and already are routinely re-exported, so market sources in the US expect little impact.
Eight new US ethane-fed steam crackers and 13 new PE plants opening in 2017-2019 are among nearly $200 billion in new US chemical infrastructure stemming from cheap feedstocks unearthed by the domestic natural gas boom.
When China's initial chemical-heavy retaliatory tariffs included LDPE, sources were not overly concerned, saying it made up one-fifth of the new capacity.
Inclusion of the other two grades increases those concerns as they make up the vast majority of new output targeted for exports because North America is already oversupplied. According to S&P Global Platts analytics, Asian demand is expected to grow faster than any other region, with China and India in the lead.
"This is worse than a hurricane," said a market source harking back to Hurricane Harvey's unprecedented assault on Texas petrochemical infrastructure nearly a year ago.
Another source noted that some producers will be able to work around any fallout. For example, DowDuPont's new Sadara complex in Saudi Arabia can supply China while its US operations can ship cargoes to other regions.
Sources said trade flows will shift as well. But at least some US producers are likely to feel the pinch after building plants that saw Asia's largest countries as their main export targets, and prices will most likely rise globally.
"What all this will do is make prices go up," a second trader source said, noting that depreciating currency in other countries -- including China -- has helped boost domestic prices, which typically leads to higher export prices as well.
