Global PE trade patterns shift with US, China tariffs
Sept. 17, 2018
Global polyethylene (PE) trade patterns are shifting and supply chains are adjusting as a result of the US-China tariffs but overall demand is not being impacted, the CEO of LyondellBasell said on Thursday.
“Trade patterns are shifting as China sources from other regions and [US producers] are shifting to markets that are vacated,” said Bob Patel, CEO of LyondellBasell, in an interview with ICIS on the sidelines of the Societe de Chimie Industrielle meeting.
“Supply chains are adjusting but there is a bit of inventory volatility as a result. Where product has landed [in China] and has to be redirected, there is price volatility. But we think that is [transitory],” he added.
Looking at supply/demand fundamentals, operating rates are still high in the low 90% range for global PE, he noted.
“Our view is that global demand in the near term is fixed, and that’s not going to change because of trade. Supply is fixed as well. And supply/demand is pretty well balanced,” said Patel.
He also noted that China’s imports of US PE for re-export are not impacted by the 25% tariffs – only those for domestic consumption. This amount of US PE sent to China that is converted and re-exported as finished products is substantial, although less than 50%.
China’s domestic demand for plastics will continue growing regardless of tariffs, as continuing urbanisation creates greater need for finished plastics such as food packaging, he said.
One scenario is that Middle East PE producers shift some product away from Europe and into China, while US producers sell more into Europe as well as other regions.
“We are positioned well, as we also produce in Europe and know what it takes to be successful there,” said Patel.
One consequence of the China tariffs on US high density PE (HDPE) and linear low density PE (LLDPE) is that companies reconsider building new crackers in the US.
“With energy price volatility and trade uncertainty, one outcome is that new crackers in the US could be reconsidered, and companies may rethink marketing plans if China is not the main destination for [PE] exports,” said Patel.
And for Chinese consumers and the global PE market, prices could rise as a result of the tariffs.
“Given where operating rates are, it could be that the global price rises. If you are a seller of PE in China that is importing from the US and now have to import from somewhere else, you are moving up the cost curve. So do those [higher] costs get passed on or do the intermediaries absorb them?” said Patel.
However, if the trade war between the US and China drags on, this could hit economic growth rates, he noted.
“As it continues, tariffs are essentially a tax and that’s an inefficiency that tends to slow growth. Over time, tariffs impact growth,” said Patel.
“On [US-China] trade, we have to see if this is negotiation and transitory or whether we’re going to see more regional [trade] activity,” he added.