Tariff effects muted
China’s proposed tariffs on certain U.S. petrochemicals are expected to have a limited impact on Gulf Coast exports, but experts warned that an escalation of the trade war between the two countries could potentially stymie the industry’s rapid expansion.
The proposed 25 percent tariffs, announced Wednesday, would include low-density polyethylene used in films and shopping bags, as well as PVC, polycarbonates, acrylates and some other chemicals. But they do not cover styrene or ethylene glycol, major U.S. chemicals exports to China used to make plastics, foams and polyester.
Jonas Oxgaard, a chemicals analyst with Sanford C. Bernstein & Co., a New York investment management and research firm, said most of the chemicals on the list are exported to China in small volumes. Only about 6 percent of low-density polyethylene manufactured in the U.S. is shipped to there, and he noted that much of that volume could
be absorbed in other export markets.
Of the polyethylene the U.S. is shipping to China, he said, “India could take every single ton.”
The measures, announced in response to the Trump administration’s decision to impose tariffs on Chinese steel and aluminum, comes amid a boom in petrochemicals production along the Gulf Coast. A surge in oil and gas drilling in West Texas has created a steady stream of cheap natural gas liquids to turn into feedstocks for plastics, building materials and consumer goods.
Major area producers including LyondellBasell, Chevron Phillips Chemical Co. and ExxonMobil Chemical are investing billions of dollars in their local facilities to meet growing demand in Asia and South America. A number of producers are eyeing export opportunities in China because the country recently stopped importing scrap plastic, which it recycled to into bottles, packaging and consumer goods, and cracked down on industrial polluters to address a smog crisis.
In a research note, Wells Fargo analyst Frank Mitsch said the proposed tariffs on chemicals would likely have few near-term effects on U.S. exports. He emphasized the competitiveness of U.S. petrochemicals production, which relies on cheap natural gas liquids instead of the heavier crude feedstocks often used in Asia and elsewhere.
He added that LyondellBasell and Westlake Chemical would likely feel little effect from the proposals. Neither company exports a substantial amount of the affected chemicals to China.
But the American Chemistry Council, an industry trade group, warned that global trade disruptions could potentially slow the development of $185 billion in new U.S. chemicals factories and expansions coming online to produce exports. China, which imported 11 percent of U.S. plastic resins last year, has emerged as a particularly important trading partner, the trade group said.
“We strongly urge the U.S. and China to reach a productive and meaningful agreement before any of the proposed tariff schedules go into effect,” ACC president and CEO Cal Dooley said.