Paul Hodges, chairman of the internationally renowned consulting firm International eChem, said recently that the imposition of tariffs between the United States and its major trading partners could trigger a global polyethylene (PE) price war because of a new round of PE projects in the United States. Products produced by the expansion of the tide will be forced to find new export markets, most likely the European market.
International eChem said that this is not just a problem in the United States. Since there is no more demand in Asia, the Middle East or Latin America, the most likely export of surplus PE products is to the European market. Hodges said that the first wave of tariffs for those People who think that globalization will continue as they have in the past sounded the alarm. 'We have reached a tipping point and it is expected that a trade war is very likely to happen.'
Regarding the impact of trade warfare on US petrochemical production capacity based on shale gas, market participants are not completely consistent. Some of these projects are completely export-oriented, while China’s tariff-improving products include low-density polyethylene. (LDPE) and linear low density polyethylene (LLDPE).
James Ray, a senior ICIS consultant based in Houston, pointed out that the cost advantage of US ethane-based PE producers is very large. In the case of China's import of PE products from the United States with a 25% import tariff, US-made PE Exporting to the Chinese market is still profitable. However, increasing tariffs will not be conducive to more US exports, but the impact is only temporary. The ICIS supply and demand database predicts that as new capacity is put into production, the US LDPE exports will account for the proportion of production. From 35% in 2017 to 56% in 2020. For LLDPE, this number will rise from 45.5% in 2017 to 65% in 2020.
James Ray pointed out that the current export volume of LDPE and LLDPE in the United States accounts for only 12% and 17% of global exports, respectively. It seems easy to find an alternative market. In 2017, the US export of LDPE to the Chinese market only accounted for its output. 6.9%, while LLDPE only accounts for 0.4% of its output.
Wood Mackenzie pointed out that if the tariff increase measures are finally implemented, the export of PE and other ethylene derivatives in the United States will have an impact. Middle East producers will use this machine to seize the market share of China's imported PE. At the same time, the Middle East Manufacturers' market share in Europe and Africa will be increasingly competitive with US products. On the other hand, if US producers insist on exporting to the Chinese market, they must be competitive with other countries' prices of $200/ton.