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Trade Tensions Reaches Chemical Industry! What Changed?

August, 2018

Background: Till now much has been written and discussed on the ongoing trade tensions between China and the US. The two sides have been exchanging rhetoric comments and announcing the additional tariff on the imports from other country. Since Donald Trump has taken the Presidency in late 2016, there have been numerous rhetoric exchanges at various fronts for the US. The issues like immigration policies, escalation with North Korea, and recent trade tariff have been the key highlights of this presidency. While all these policies were majorly impacting the services industry, chemical industry was one of the lesser impacted industry. Which has changed now with polymer, methanol, and natural gas at the forefront of it.

Current Impositions: The lists issues by both the countries include long list of chemical products which shall be facing higher tariffs. The US imports large number of intermediate and specialty chemicals from China, while China’s imports for polyolefins has seen rise on back of feedstock advantage with America producers. The changing policies from China towards cleaner environments has been changing its demand for natural gas and associated chemicals. The official list issues by the US trade representative office include many polylefins and copolymers, along with key chemicals such as Vinyls, acrylics, polyamide, phenolic resins among many others. In retaliatory measures China imposed tariff on LNG and methanol imported from the US.

Market Exposure: The US imports large quantities of chemicals from China. Although some of the chemicals mentioned in the list are not largely imported by the US, yet there are few chemicals in the list which are imported by the US in large quantities. This is expected to impact chemicals market negatively with price hike and supply disruptions. Likewise, the increasing Chinese imports of natural gas and methanol from the US is expected to see the impact in terms of demand growth, and pricing fluctuations. The spot prices for both natural gas and methanol have already seen some impact in the Chinese domestic market.

Impact: the current market standing has given the indications of different market growth in different geographies. While China has been dominant in creating large export-oriented capacities, the changes in the feedstock technology in last decade and half has resulted in high capacity build-up in the US with objective of serving foreign markets. The olefins and polyolefins markets have seen sharp capacities growth in the US market. The investments in the Chinese intermediate and specialty chemical products are also at unprecedent level. The chemical industry which was looking at these two largest economies to drive the global growth, has to look for plan B. The fluctuations in the oil prices have also seen impact of ongoing trade disputes, which is expected to add problems for petrochemical sector. Overall, in nutshell the cooperative growth chances look bleak for at least a year and the cost of changes shall be bore by industry players and consumers collectively.

– Ankur Kalra,
Manager – Chemicals & Materials,
Infoholic Research