Planned US tariffs on Canadian and Mexican imports will disrupt years of free flowing polyethylene (PE) and polypropylene (PP) trade between the three countries, market sources say, which could lead to higher prices and less spot market trading.
US President Donald Trump repeated on Thursday plans to impose 25pc tariffs on all Canadian and Mexican imports as soon as 1 February. The US and Canadian petrochemical markets in particular operate like one market, with buyers purchasing resin from producers on both sides of the border. Canadian producers are embedded in US buyers' supply strategies, but if Canadian resin is suddenly 25pc more expensive, buyers may need to reconsider other alternatives within the US. Canadian producers may feel obliged to swallow the costs to keep market share, while others may back away from spot trading in the US market, where margins for generic prime, offgrade and widespec material are already lower.
"It's about to get pretty crazy," said one US polymer distributor, active in both the US and Canada markets.
Canadian producer footprint significant
There is approximately 4.6mn t/yr of PE capacity in Canada operated by three major producers, Nova Chemicals, Dow and ExxonMobil, representing around 16.3pc of total US/Canada capacity. Dow is in the planning stage of a $6.5mn net zero CO2 emissions project planned in Alberta, Canada, that will include an additional 2mn t/yr of PE capacity.
Heartland Polymers, the only PP producer in Canada, has 525,000 t/yr of PP capacity, representing approximately 4.9pc of total US/Canada PP capacity.
Canadian producers are still figuring out how to respond, not wanting to lose market share to US competitors.
In a 23 January statement to customers, Nova Chemicals attempted to reassure its US customers.
"We understand the importance of remaining competitively priced to retain your business," the communication said. "As stated previously, Nova chemicals is the importer of record, and will be responsible for paying the tariff."
Buyers have taken that statement to mean that Nova will not pass the cost of the tariff on to US customers, but other market participants said that is less clear.
A Nova spokesman said only that "US customers will not need to manage the customs process associated with their order from Nova" but did not comment on whether the cost would be passed along to buyers.
A spokesman from Heartland Polymers declined to comment, saying they do not comment on "political matters."
Dow and ExxonMobil did not immediately respond to requests for comment.
Sources said the tariffs could fundamentally shift the way the markets operate.
"Tariffs will change the way they do business," said one buyer active in both the US and Canadian markets, speaking of Canadian PE and PP producers.
One trader said it believes that even if Canadian producers remain competitive for contract business, they are unlikely to participate in the spot market in the US, which typically has lower margins.
"If they don't have to sell it in the US, they won't do it," the trader said.
Canadian customers could also feel the impact if Canada responds with its own tariffs, sources said.
"Canadian customers might feel out of harms way, but if the US tariffs them, they will tariff the US," said one PP distributor. "I think both sides are going to be looking for a solution."
Mexico flow largely one-way
The situation in Mexico is slightly different, with most resin flowing one way — from the US into Mexico — where local production is not enough to meet Mexican demand. Sources there said the big impact will come when or if Mexico responds with retaliatory tariffs on US resin.
"A tariff is going to be like a gunshot in the leg for the Mexican economy," said one Mexican polymer producer.
The initial concern for most customers in the three countries is existing contracts with resin producers, but later there will be concerns about demand, with the potential for manufacturing to shift back to the US from Canada and Mexico.
"Some people are thinking some production may come back to the US with tariffs, so you could see a slight demand boost," said one US-based PE distributor.
For now, Canadian producers are believed to have shipped large quantities of resin over the border to the US in recent weeks, believing that if it is already across the border it is not subject to any new tariff. Sources said they are hopeful those volumes will buy them some time until the governments in both countries can come to an agreement.
