China's planned import tariffs on polyethylene (PE) from the US are likely to cut deliveries in the coming months, slowing production in key downstream plastics sectors such as packaging in the world's largest polymer market.
The Chinese government on 8 August announced plans to impose a 25pc tariff on imports of linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) from the US, in response to Washington's planned tariffs on a range of Chinese chemicals and industrial goods. The tariffs are scheduled to take effect on 23 August. But low density polyethylene (LDPE) was removed from the final list of tariffs. Supply of LDPE is tight in the Chinese domestic market.
China imported 298,451t of HDPE from the US in 2017, making up 4.7pc of total arrivals. Imports of US-origin LLDPE were 39,863t, or 5.3pc of total imports.
The start-up of seven ethane-based PE plants in the US has doubled China's imports of PE from the US this year. HDPE imports from the US reached 46,492t in March, up from 13,913t in December 2017.
Flows of PE from the US to China had been expected to increase in the second half of this year until the trade war intervened. The 25pc import tariffs will increase costs of US-origin supplies by $280-330/t and reduce deliveries to minimal levels. This has resulted in the cancellation of most deals before payment had been done.
US producers are trying to divert cargoes to other buyers outside China. But some cargoes that have already been booked are due to arrive in China soon, exposing buyers to higher costs through the new tariff. Chinese converters that cannot replace other cargoes immediately have been in talks with sellers, proposing that the tariffs costs be split 50:50 between buyers and sellers.
US-origin material is not exported regularly to China because of the long voyage time and logistical issues, with Chinese buyers only taking cargoes when offers are very competitive. But the recent policy changes have made Chinese importers more hesitant — even to purchase LDPE, which was not included in the latest tariff list — because of the risk of more policy changes before cargoes arrive.
US petrochemical producers are large companies with a global reach, and so can adjust their global production to minimise the impacts of the tariffs in the longer term, although it may take some for operations to adapt. US suppliers are still trying to sell to other regions, but may be prepared to negotiate lower prices with Chinese buyers if they have unsold cargoes.
And Chinese market participants are not too concerned about the overall impact of the new tariffs, as supplies may only fall for a while and other origins such as India and the Middle East will be able to compensate for supply losses from the US.
But sentiment among regional converters and other participants in the PE market has been impacted. Trading has slowed in southeast Asia, with most converters buying on a need-to basis.
"Demand has slowed down from sectors like packaging due to the trade war," said a Singapore-based LLDPE distributor.
The final list of the next tranche of proposed tariffs on US-origin supplies to China removed standard PVC and added PVC paste. The change may avoid major US grades K-67 being dragged into the trade war.
The US is the biggest PVC exporter to China, exporting 306,539t to the country last year, which is around 40pc of China's total import volume. But most cargoes are sold to directly to consumers through long term-contracts, reducing the impact on the market from any potential tariffs.
