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.
The back-and-forth began last month, when the Trump Administration imposed tariffs on Chinese steel and aluminum. China then retaliated with tariffs on some $3 billion in U.S. goods, and each country has since threatened to target additional imports.
China has for years been a key U.S. trading partner, importing $130 billion in American goods last year, IHS Markit noted. The U.S. imported $505 billion in Chinese goods during the same period.
China’s recently proposed tariffs target only 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 stated.
IHS Markit noted, however, that the proposed tariffs could affect U.S. polyethylene prices if the measures last beyond 2019, when more than a millions tons of low-density polyethylene production capacity is expected to come online as Dow Chemical, Formosa and Sasol complete major projects.
However, 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.