Dispute could hamper U.S. boom

The escalating trade dispute between the U.S. and China could hinder a global boom in petrochemicals production largely centered on cheap natural gas liquids from American shale fields, according to an analysis by IHS Markit.

Both countries have proposed tariffs on billions of dollars’ worth of imports, including certain chemicals and plastics. IHS Markit anticipates that the measures, if implemented, would deal a blow to U.S. producers of polyethylene, propane and vinyls and force them to search for export opportunities in other Asian countries.

China’s proposed tariffs target certain types of polyethylene, the world’s most common plastic. Low-density polyethylene, used in bags and packaging, would be most affected, but IHS Markit anticipates that producers of those materials would look for export opportunities in Europe and supply China with facilities in Asia and the Middle East.

“No doubt some shuffling will occur and trade will rebalance,” the analysis said.

IHS Markit noted, however, that the proposed tariffs could affect U.S. polyethylene prices if the measures last beyond 2019, when more than 1 millions tons of low-density polyethylene production capacity are expected to come online as Dow Chemical Co., Formosa and Sasol complete major projects.

The tariffs could also affect prices for U.S. propane, 3.4 million metric tons of which was exported to China last year, according to IHS Markit. The firm expects producers would look for new export opportunities in Japan and South Korea should the Chinese measures take effect.

U.S. producers of certain types of vinyls, including ethylene dichloride, have fewer export options outside of China, and IHS Markit anticipates that they would likely reduce domestic operating rates to avoid a supply glut.