China tariffs on US chemicals adds uncertainty to capital investment

Commenting on the news that China is planning to place tariffs on chemicals from the US, Wood Mackenzie Senior Vice President Chemicals, Stephen Zinger, said:

"It is a complicated situation. If the tariffs are implemented immediately, delivered prices will go up for those particular chemicals as buyers and sellers will experience initial difficulty with realigning trade. Once a tariff implementation date is announced, trade, implied demand and inventories will likely initially increase as buyers will pre-buy ahead of implementation.

"Longer-term, if the tariffs are sustainable, this will also add uncertainty to capital projects. As companies are looking to make investments in new facilities, particularly in China and the US, they will likely pause on decisions to proceed. This is due to the general uncertainty of tariffs on the netbacks for their primary product sales and also knock-on effects of multi-commodity tariffs (eg. higher costs of steel for construction of new plants). 

"Additionally, companies would be forced to adjust their global supply chains in order to minimise the impact of the tariffs, which is often not good for business due to higher logistics costs and other supply chain uncertainties."