Since the end of March, trade frictions between China and the United States have intensified. Especially in early April, the Chinese government plans to increase tariffs on liquefied propane, EVA and other products from the United States by 25%, which has aroused concern in the industry for follow-up chemical products.
Normally, the industry calculates 1 ton of propylene based on 1.2 tons of propane, and then calculates the cost of polypropylene by adding 800 yuan/ ton of polymerization fee. The tariff increase will short-term increase for Daicom Polypropylene Futures (PP). The production cost of futures'), but the escalation of trade friction will affect economic development, which in turn will cause the demand for PP futures to decline and the price to fall.
Greater impact on China
Since 2015, 80% to 95% of China's imported propane has come from the Middle East and the United States. Unlike China's propane imports, which are highly dependent on the Middle East and the United States, the dependence of US propane exports on China is relatively low.
Taking the last three years as an example, there were 2.69 million, 3.25 million, and 3.37 million tons of propane exported to China from 2015 to 2017, accounting for only 14.9%, 13.80%, and 13.27% of the propane exports of the United States; Propane in the United States accounted for 31.51% of China's propane imports, 28.04%, 25.25%. According to EIA data, the propane exports from 2013 to 2017 were 8.87 million, 12.43 million, 18.87 million, 23.55 million, and 26.58 million tons respectively.
In other words, the amount of propane exported from the United States is increasing. Although China’s consumption has increased year by year, most of the new propane exports in the United States have been digested in other parts of the world. Therefore, increasing propane tariffs will have far less impact on US industries. China's influence is big.
PP Production costs will temporarily increase
At present, China’s polypropylene pellet production capacity is approximately 22 million tons. Although there are 4.67 million tons of pure PDH plant (propane dehydrogenation) in the country, there are only Haiwei, Sanyuan and Donghua’s two sets of PP futures downstream. The plant, with a total capacity of 1.6 million tons, accounts for approximately 7.3% of China's polypropylene production capacity.
If the propane tariff increases by 25%, it will definitely have a significant impact on the supply of downstream propylene. The 294 million tons of propane cost will increase dramatically in the short term. The corresponding propylene will have a supply of 294/1.2 = 2.45 million tons, which will substantially increase the cost. An increase of 25%. This will inevitably cause companies to reduce the purchase of U.S. propane, which in turn will substantially increase the procurement of Middle East propane. The increase in tariffs will reverse the situation in the United States in the price of U.S. propane in the Middle East.
Since many domestic companies have long-term contracts, if trade frictions between China and the United States are further aggravated, these companies will face compliance risks. The impact on the supply side of polypropylene will be slightly smaller, but it can't be ignored. After all, even these pure PDH units can not produce propylene themselves. Instead of purchasing on the market, the increase in propylene prices will inevitably lead to higher PP production costs.
In addition, in the medium and long term, the economies of both China and the United States will obviously decline, and the marginal demand for the overall industrial products will also decline. After all, once the economic expectations change, investors' income and even the potential spending power of residents will change drastically. At that time, the downstream of non-standard PP futures, whether it is automobile consumption or consumption of white goods, will obviously decline, and the entire PP futures price center will face revaluation.
It is worth noting that the market should focus on changes in the demand side. If trade frictions increase, the export demand for manufacturing in China and the United States will shrink significantly, which will in turn reduce domestic demand. By then, changes in the demand side will have a more profound impact on the domestic industrial goods market. , and the current supply-based interpretation will no longer apply.