News Release

US-China trade dispute will disrupt global polyolefins trade

Following the escalation of trade tariff disputes between the world’s two largest economies, China and the U.S., Wood Mackenzie Chemicals expects that U.S. polyolefins exports to China will be negatively impacted by 50% in 2019.

Instead, China will continue to import from the Middle East, South Korea, Thailand and Singapore for its supply. The new polyethylene investment volume will find markets in Europe, Latin America, Africa and Asian countries.

According to Wood Mackenzie Chemicals’ latest research, ‘The US-China trade dispute and its effect on the polyolefins industry’, tariffs will push export prices down in the U.S. and reduce margins for U.S. exporters shipping to China. Although better margins can be found in Latin America, Europe and African countries, the demand is low and fragmented.

Commenting on the research, Ashish Chitalia - Wood Mackenzie Chemicals Principal Analyst - said: “With the festive holiday shopping season about to begin, decreased supply for plastic finished goods in the U.S. will hit consumers in the pockets. Despite this, the recently strengthened dollar will alleviate some of the pricing pressure.

“However, on a longer-term, the well-developed downstream plastics manufacturing industry can benefit. Tariffs on imported polyolefins finished goods from China, along with ample domestic resin production and lower-priced polymer, will support domestic producers. It will boost manufacturing, retail industries and create more jobs in the plastics manufacturing sector, encouraging more plastics to be ‘Made in America’."

The research also revealed that polyolefins resin and finished goods trade will be optimised at the next best price-point. The best netbacks, especially in the case of finished goods, will be offered by the higher price alternatives. In the case of polyethylene resin, US producers will be compelled to expedite the search for better netbacks. The tariff implications on polypropylene resin will be muted as the U.S. does not export much polypropylene resin to China.

Discussing the medium to long-term impact, Ashish Chitalia continued: “China is the fastest growing market for U.S. polyolefin resin exports. Domestic market growth in China is strong, and the level of investment in new capacity is insufficient to meet demand. The 25% tariff on HDPE and LLDPE will have the largest effect as the need for more imports will grow strongly for these resins.

“Depending on the types and grades, China will source resin from the Middle East and Asia. As the majority of U.S. capacities are metallocene LLDPE and bi-modal HDPE, the sourcing of these products could be a challenge, and will depend on how US producers optimise their global assets/supply chains.

“We previously expected the U.S. to be the incremental supplier for China’s increasing import demand, but the introduction of tariffs will expedite US producers’ search for ‘better netback’ markets within North America, Latin America, Europe and Africa.

“Globally, numerous last-moment ship re-routing and swap agreements will impact logistical and financial arrangements, therefore squeezing the margins for global traders and suppliers. Additionally, several regions will start seeing unexpected volumes from the U.S. (resin) and China (finished goods), imparting downward pricing pressure for resin and plastic finished goods.”