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Report: Tariffs squeeze US resin exports to China

PLASTICS NEWS

Trade tariffs between the U.S. and China will have a massive negative effect on U.S. polyolefins exports to China next year, but ultimately will help American plastics processors, according to a report from global consulting firm Wood Mackenzie.

Wood Mackenzie, which has offices in Houston, London and Singapore, expects that U.S. polyolefin exports to China will be negatively impacted by 50 percent in 2019, according to the report. China instead will continue to import from the Middle East, South Korea, Thailand and Singapore.

New PE investment volume in the U.S. will find markets in Europe, Latin America, Africa and Asian countries, according to the report. But the 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 American, European and African countries, the report said that demand from those regions "is low and fragmented."

"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," principal analyst Ashish Chitalia said in an Oct. 16 news release. "Despite this, the recently strengthened dollar will alleviate some of the pricing pressure."

But Chitalia added that, in the longer term, "the well-developed downstream plastics manufacturing industry [in the United States] can benefit."

That's because tariffs on imported polyolefin finished goods from China, along with ample domestic resin production and lower-priced resin, will give a lift to domestic U.S. producers.

"It will boost manufacturing, retail industries and create more jobs in the plastics manufacturing sector, encouraging more plastics to be 'Made in America,'" Chitalia said.

Several regions of the world also are expected to start seeing unexpected volumes of resin from the U.S. and of finished goods from China. These actions will lead to downward pricing pressure for resin and plastic finished goods, according to the report.

In the medium- to long-term, Chitalia said China is the fastest growing market for U.S. polyolefin resin exports. He added that domestic market growth in China is strong, and the level of investment in new capacity is insufficient to meet demand.

"The 25 percent tariff on [high density PE] and [linear low density PE] will have the largest effect, as the need for more imports will grow strongly for these resins," Chitalia said.

Instead, 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, Chitalia said, the sourcing of these products could be a challenge, and will depend on how U.S. producers optimize their global assets and supply chains.

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

Globally, Chitalia said that numerous last-moment ship re-routing and swap agreements will impact logistical and financial arrangements, squeezing margins for global traders and suppliers as a result.

 

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