Potential tariff impacts on polyethylene

US tariffs, Chinese reciprocal tariffs and the risk of additional retaliatory tariffs from other regions such as Europe have placed the polyethylene (PE) industry into turmoil at a time of excess capacity and slow demand growth. Global plant operating rates were already forecast around the mid-70pc mark for 2025-27, but as recessionary pressures grow and demand continues to stagnate, PE producers will be challenged with low rates, rationalization and weak margins that might extend well beyond 2028.

US Exports

Tariff disputes with China are not new to US PE producers. China imposed 34pc tariffs on US imports of HDPE and LLDPE in 2018 and 2019 owing to trade disputes. The chart below shows how the HDPE trade patterns shifted from 2018 to 2019.

US exports to China declined by 41pc from 2018 to 2019 but US exports to all other Asian countries increased with Singapore, Malaysia and Korea increasing by 328pc, 264pc and 410pc, respectively. In fact, overall exports from the US to Asia increased by 77pc in 2019 compared with 2018. Therefore, a tariff dispute between China and the US would likely change trade patterns but it does not necessarily indicate that US exports will decline significantly. But the amount of HDPE exported from the US to China in 2024 is 77pc higher compared with 2018, and so US producers might find it difficult to seek alternative countries that can absorb this 500kt-plus of additional exports reported in 2024. Note: The decline in total US exports to Asia in 2021 and 2022 was due to the Covid-19 pandemic.

US Domestic Demand / Supply

The chart below represents US domestic production, domestic sales and exports for PE (HDPE, LLDPE and LDPE) as reported by the American Chemistry Council (ACC) from 2013 to January 2025.

Domestic sales grew by 7.7pc over this 11-year period with domestic production increasing by 64pc. Obviously, the added production was sold into the export markets. Exports as a percent of production increased from 20pc in 2013 to 47pc in 2024. November exports exceeded 50pc of production, according to ACC reports. But a key difference is that the US is not just targeting China, so all the countries that picked up some of those exports in 2019 could impose reciprocal tariffs, thus limiting export alternatives for the US. Smaller Asian countries might look at reciprocal tariffs differently as opposed to China as their objectives are more focused on being competitive with other import alternatives, therefore low import resin costs are likely to be a key decision driver.

The Trade-off of Tariff and Export Adjustments

Besides the global economic scenarios, the biggest concern is what might happen with President Donald Trump’s tariff proposals on Chinese imports. Global Trade Tracker (GTT) data analysis based on plastics-related HS codes for large-volume Chinese finished plastics exports to the US is shown in the next chart. Only about 20pc of China exports of finished plastics goods were exported to the US in 2024. The net result is that US tariffs on China imports could have an impact on trade but 80pc of China’s finished plastic exports are destined to other non-US regions. It is likely that China could shift exports to other regions such as Latin America, Europe or India and their net consumption of resin would have minimal impact. But for US producers, a major concern would be the impact that China retaliatory tariffs could have on resin imports in response to the US tariffs, as referenced earlier.

Summary

The global polymer markets are experiencing significant disruptions owing to excess capacity and sluggish demand growth. Since PE is one area the US has a huge positive trade balance with, this would be an area that other countries are likely to put retaliatory tariffs on. And since places such as Europe and China have low operating rates, tariffs on US PE would help drive their operating rates up with a negligible risk of price increases. US exports can be reallocated to other Asian countries as China’s PE import demand might adjust to sourcing product from the Middle East, southeast Asia and India, etc. The key question is how the global markets will respond to a shift in trade as today’s tariff developments are affecting hundreds of countries worldwide. Perhaps the biggest concern will be how the global demand for PE finished goods will be negatively affected as this will extend the time of low margins and continue to put pressure on high-cost facilities such as non-integrated facilities with high-cost feedstocks. Of course, ethylene costs related to naphtha prices is another variable that could have a major impact on the competitiveness of derivatives based on ethylene derived from ethane from the Permian basin, but that is for another discussion.

Author Terry Glass, VP Polymers