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BLOG: Tariffs, Trump, US-China LDPE and the role of AI

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. I rest of my case! Just 24 hours ago, I wrote: "WATCH OUT for those who claim they know the final outcomes of President Trump’s latest tariffs on imports from Canada, Mexico, and China." And here we are. Overnight, the Financial Times reports: ➡️ Trump Backs Away from Tariffs (For Now) ➡️ Canada & Mexico Strike a Deal to avoid tariffs by stepping up border security and anti-drug trafficking efforts. ➡️ Canada’s Additional Commitments include C$200M in funding to combat fentanyl trafficking and appointing a "Fentanyl Czar." The US-China trade relationship has seen big swings in recent years, especially in chemicals and polymers. Consider these shifts in HDPE & LLDPE trade: US HDPE exports to China surged 120% (1.8M tonnes in 2022-24 vs. 0.8M tonnes in 2019-21). Meanwhile, Saudi Arabia’s exports fell 40%. US HDPE sales turnover in China rose by nearly one billion dollars. Saudi Arabia’s turnover was down by $2.3bn. Iran was 1.8bn lower and South Korea 0.52bn lower. US LLDPE exports jumped 190% (3.1M tonnes), while Iran and Thailand saw major declines. US LLDPE sales turnover in China increased by $2.3bn while most of China’s other top ten trading partners saw declines in their turnovers. Thailand saw the biggest decline at $519m followed by Iran at $418m and Singapore at $314m. As today I complete my series by taking a deep dive into US-China LDPE trade, the polymer was different. US exports to China still rose 67%, despite lacking the tariff waivers that helped HDPE & LLDPE. US LDPE turnover in China grew by $577m with the UAE $208m higher as Iran and Saudi Arabia declined by $431m and $206m. respectively. What does this tell us? Tariffs are just one piece of the puzzle. Other factors—feedstock advantages, market positioning, and China’s self-sufficiency in commodity grades—are all in play. The bigger question: Where does US-China trade go from here? And how do we build scenarios that factor in Trump’s policies, climate change, and geopolitical shocks? AI presents an opportunity. It arrived at a time when markets are more complex than ever. We don’t yet know how useful it will be in predicting trade flows, but we do know one thing: The only way to find out is to engage with it. Thoughts? Let’s discuss. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

04-Feb-2025

US suspends tariffs on Mexico for one month as high-level talks on key issues start

SAO PAULO (ICIS)–The US has agreed to pause for one month its 25% import tariffs on Mexican goods as the two countries agreed setting up working groups on three key issues, the presidents of both countries said on Monday. Over the weekend, the US announced also a 25% tariff on Canadian goods and a 10% tariff on Chinese goods. The move – now suspended regarding Mexico trade – is expected to increase costs for the US’s chemical industry and create supply-chain snarls as well as risking retaliation from countries on which tariffs are imposed. Speaking to reporters, Mexico’s Claudia Sheinbaum said she had agreed with US president Donald Trump during a phone call to set up three bilateral working groups on border security issues, on fentanyl trade – a powerful drug which has caused havoc across the US – and on guns and arms traffic from the US to Mexico. Mexico's main stock exchange, which had opened Monday trading with a fall of nearly 2%, was turning green soon after Sheinbaum spoke to reporters. The Mexican peso was also gaining ground against the dollar. As part of the agreement, Mexico will deploy members of the National Guard to the border with the US. Trump confirmed on a post on social media he had a “friendly conversation” with Sheinbaum, although he only mentioned border security and fentanyl as part of the agreement to pause the tariffs for one month. “She [Sheinbaum] agreed to immediately supply 10,000 Mexican Soldiers on the border separating Mexico and the US. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our country,” said Trump in his owned social media network TruthSocial. “We will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico. I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a 'deal' between our two countries.” Sheinbaum confirmed the two presidents will be actively involved in the talks, and it will be them who ultimately assess progress on the talks, although she said there is no date for any physical meeting between them. “The tariffs have been put on hold for a month, which is very important. We will work together on the two issues of security and fentanyl, and he [Trump] will also review the issue of arms trafficking from the US to Mexico,” said Sheinbaum. “I am sure that this month we will be able to give results, good results for the people, good results for the people of Mexico – it was a good conversation within a respectful framework of respect.” Mexican journalists pushed Sheinbaum on the potential deportation of millions of Mexicans who are residing and working in the US illegally, some of them for years. Their remittances sent home are key for many Mexican households to make ends meet. President Trump has said he intends to deport many undocumented migrants. The president did not say whether that was part of the one-month talks coming up. “We have a working group [on this issue already] where we talk about the defense of Mexicans in the US. They will have always have our support, always, above all else, not only because it is the obligation of the president to defend Mexicans anywhere in the world, and particularly in the US, but we do it with conviction, with a lot of solidarity and love,” she said. Sheinbaum added that her success in pausing the tariffs was not hers alone and thanks Mexican businesses and policymakers who all came out against the tariffs, as well as counterparts in the US who did the same. The tariffs, if prolonged in time, would have caused havoc to the already slowing Mexican economy, with manufacturing having greatly felt the pinch during 2024. “When the tariffs were announced, a very large wave of public communications against them came out. I want to thank companies, business chambers, communities that came out to defend Mexico and to support the President and the truth is that this gives a lot of strength when one sits down to talk with a leader from another country, particularly the US,” said Sheinbaum. “Many people in the US came out to say that the tariffs don't make sense and would thank them a lot as well. Politicians, governors, congressmen, but also many companies from the US that came out to say that this is not convenient. That environment led to the agreement that we have today.”

03-Feb-2025

INSIGHT: US tariffs unleash higher costs to nation's chem industry

HOUSTON (ICIS)–The tariffs that the US will impose on all imports from Canada, Mexico and China will unleash higher costs for the nation's chemical industry, create supply-chain snarls and open it to retaliation. For Canada, the US will impose 10% tariffs on imports of energy and 25% tariffs on all other imports. For Mexico, the US imposed 25% tariffs on all imports but the countries' presidents said on Monday the tariffs are being paused for a month. For China, the US will impose 10% tariffs on all imports. US IMPORTS LARGE AMOUNTS OF PE FROM CANADAUS petrochemical production is concentrated along its Gulf Coast, which is far from many of its manufacturing hubs in the northeastern and midwestern parts of the country. As a result, individual states import large amounts of polyethylene (PE) from Canada – even though the nation as a whole has a large surplus of the material. Even Texas imports large amounts of PE from Canada – despite its abundance of plants that produce the polymer. In addition, polyester plants in North and South Carolina import large amounts of the feedstocks monoethylene glycol (MEG) and purified terephthalic acid (PTA) from Canada. The US as a whole imports significant amounts of polypropylene (PP) and polyvinyl chloride (PVC) from Canada – again, despite its surplus of these plastics. The following table lists some of the main plastics and chemicals that the US imported from Canada in 2023. The products are organized by their harmonized tariff schedule (HTS) code. HTS PRODUCT MEASUREMENT VOLUMES 3901.40.00 Ethylene-alpha-olefin copolymers, having a specific gravity of less than 0.94 kilograms 1,307,845,170 3901.20.00 Polyethylene having a specific gravity of 0.94 or more, in primary forms kilograms 1,085,280,784 3901.10.50 Polyethylene having a specific gravity of less than 0.94, in primary forms kilograms 418,750,130 2917.36.00 Terephthalic acid and its salts kilograms 407,710,439 2905.31.00 Ethylene Glycol kilograms 329,542,378 3902.10.00 Polypropylene, in primary forms kilograms 240,064,681 3904.10.00 Polyvinyl chloride, not mixed with any other substances, in primary forms kilograms 188,800,413 2902.44.00 Mixed xylene isomers liters 96,001,609 2905.12.00 Propan-1-ol (Propyl alcohol) and Propan-2-ol (isopropyl alcohol) kilograms 87,805,095 3901.30.60 Ethylene-vinyl acetate copolymers kilograms 71,372,396 Source: US International Trade Commission (ITC) IMPORTS FROM MEXICOMexico is not as large of a source of US petrochemical imports as Canada, but shipments from the country are still noteworthy. The following table lists some of the main plastics and chemicals that the US imported from Mexico in 2023. HTS PRODUCT MEASUREMENT VOLUMES 2917.36.00 Terephthalic acid and its salts kilograms 69,230,708 2902.11.00 Cyclohexane kilograms 52,587,915 3901.10.50 Polyethylene having a specific gravity of less than 0.94, in primary forms kilograms 34,674,435 2915.24.00 Acetic anhydride kilograms 25,294,318 3904.10.00 Polyvinyl chloride, not mixed with any other substances, in primary forms kilograms 24,005,371 2915.31.00 Ethyl acetate kilograms 18,855,544 3901.20.00 Polyethylene having a specific gravity of 0.94 or more, in primary forms kilograms 14,469,582 3902.10.00 Polypropylene, in primary forms kilograms 8,848,458 Source: US International Trade Commission (ITC) IMPORTS FROM CHINAChina remains a significant source for a couple of noteworthy chemicals despite the effects of the tariffs that US President Donald Trump imposed during his first term in office. The following table shows 2023 US imports from China. HTS PRODUCT MEASUREMENT VOLUMES 29152100 Acetic acid kilograms 21,095,566 39093100 Poly(methylene phenyl isocyanate) (crude MDI, polymeric MDI) kilograms 206,642,886 Source: US International Trade Commission (ITC) China's shipments of plastics goods are more significant. OIL TARIFFS WILL HIT US REFINERSCanada and Mexico are the largest sources of imported crude oil in the US, and the heavier grades from these countries complement the lighter grades that the US produces in abundance. Those imports help fill out refining units that process heavier crude fractions, such as hydrocrackers, cokers, base oil units and fluid catalytic cracking (FCC) units. Refiners cannot swap out heavier Canadian and Mexican grades with lighter US grades. Instead, they will need to pay the tariffs or find another supplier of heavier grades, possibly at a higher cost. The following table shows the largest sources of imported crude in 2023. Figures are listed in thousands of barrels/day. COUNTRY IMPORTS % Canada 3,885 59.9 Mexico 733 11.3 Saudi Arabia 349 5.4 Iraq 213 3.3 Colombia 202 3.1 Total US imports 6,489 Source: Energy Information Administration (EIA) US refiners could take another hit from higher catalyst costs. These are made from rare earth elements, and China remains a key source. TARIFFS TO RAISE COSTS FOR FERTILIZERCanada is the world's largest producer of potash, and it exports massive amounts to the US. It is unclear how the US could find another source. Russia and Belarus are the world's second and third largest potash producers. Together, the three accounted for 65.9% of global potash production in 2023, according to the Canadian government. Canada accounts for significant shares of other US imports of fertilizers. The following table lists some of Canada's fertilizer shipments to the US in 2023 and shows its share of total US imports. Figures are from 2023. HTS PRODUCT MEASUREMENT VOLUME % 31042000 Potassium chloride metric tonne 11850925 88.8 31023000 Ammonium nitrate, whether or not in aqueous solution metric tonne 295438 76.6 31024000 Mixtures of ammonium nitrate with calcium carbonate or other inorganic nonfertilizing substances metric tonne 29203 75.7 31055100 Mineral or chemical fertilizers, containing nitrates and phosphates metric tonne 1580 66.1 31022100 Ammonium sulfate metric tonne 947140 49.6 31052000 Mineral or chemical fertilizers, containing the three fertilizing elements nitrogen, phosphorus and potassium metric tonne 147850 41.4 Source: US ITC SUPPLY CHAIN SNARLSIf US companies choose to avoid the tariffs and seek other suppliers, they could be exposed to delays and supply chain constraints. Other companies outside of the petrochemical, plastic and fertilizer industries will also be seeking new suppliers. The scale of these disruptions could be significant because Canada, Mexico and China are the largest trading partners in the US. The following table lists the top 10 US trading partners in 2023 based on combined imports and exports. Country Total Exports ($) General Imports ($) TOTAL Mexico 322,742,472,406 475,215,965,697 797,958,438,103 Canada 354,355,997,349 418,618,659,183 772,974,656,532 China 147,777,767,493 426,885,009,750 574,662,777,243 Germany 76,697,761,127 159,272,068,221 235,969,829,348 Japan 75,683,130,214 147,238,042,342 222,921,172,556 South Korea 65,056,093,590 116,154,470,335 181,210,563,925 UK 74,315,228,810 64,217,031,774 138,532,260,584 Taiwan 39,956,725,574 87,767,403,487 127,724,129,061 Vietnam 9,842,922,146 114,426,076,081 124,268,998,227 Source: US ITC RETALIATIONUS petrochemical exports would be tempting targets for retaliation because of their magnitude and the global capacity glut. China, in particular, could impose tariffs on US chemical imports and offset the disruptions by increasing rates at under-utilized plants. So far, none announced plans to target chemicals on Sunday. Canada's plans to impose 25% tariffs on $30 billion in US goods does not include oil, refined products, chemicals or plastics. That batch of tariffs will take place on February 4. Canada will impose 25% tariffs on an additional $125 billion worth of US goods following a 21-day comment period, it said. The government did not highlight plastics or chemicals in this second batch of tariffs. Instead, it said the tariffs will cover passenger vehicles and trucks, including electric vehicles, steel and aluminium products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles and recreational boats. In a statement issued on Sunday, Mexico's president made no mention of retaliatory tariffs. Instead, she said she will provide more details about Mexico's response on Monday. China said it will start legal proceedings through the World Trade Organization (WTO) and take corresponding countermeasures. RATIONALE BEHIND THE TARIFFSThe US imposed the tariffs under the nation's International Emergency Economic Powers Act (IEEPA), which gives the president authority to take actions to address a severe national security threat. In a fact sheet, Trump cited illegal immigration and illicit drugs. Saturday's executive order is the first time that a US president imposed tariffs under IEEPA. Prior IEEPA actions lasted an average of nine years. They can be terminated by a vote in Congress. Insight article by Al Greenwood (Thumbnail shows containers, in which goods are commonly shipped. Image by Shutterstock)

03-Feb-2025

BLOG: Trump launches trade war with US’s top 3 trade partners; says Europe & key business sectors are next

LONDON (ICIS)–Click here to see the latest blog post on Chemicals & The Economy by Paul Hodges, which focuses on the start of Trump’s trade war. We delayed posting until today to ensure we covered the latest developments. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author and do not necessarily represent those of ICIS. Paul Hodges is the chairman of consultants New Normal Consulting.

03-Feb-2025

Americas top stories: weekly summary

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 31 January. Colombia accepts US terms for migrants’ deportations, fends off 25% tariff threat Colombia became over the weekend the first Latin American country to get a taste of President Donald Trump’s immigration policy mixed with unconventional diplomacy after the country refused landing to two flights with repatriated Colombian migrants. INSIGHT: US tariffs of 25% on Mexico and Canada would cause massive hit to GDP – ICIS analysis Proposed US tariffs of 25% on all imports from Mexico and Canada would have a massive negative impact to the GDP of the exporting countries and slow US GDP growth as well, according to the ICIS economist. Brazil’s chemicals to slow in 2025 amid currency, fiscal deficit woes – Activas CEO Brazil’s chemicals distribution sector posted healthy activity in 2024 as manufacturing finally gained traction, but conditions are set to worsen in 2025 amid high inflation, high borrowing costs, and a government too prone to spend, according to the CEO at Brazilian chemicals distributor Activas. Dow to face margin pressure in Q1 with no help from macros – execs Dow expects to face sales and margin pressures in Q1 2025 with no improvement in the macro outlook following a difficult Q4, senior executives said. LyondellBasell confident on Q1 PE price gains on cracker downtime, lack of new capacity – execs LyondellBasell expects to see price improvement in North America polyethylene (PE) in Q1 on industry cracker outages and lack of new local capacity starting up, along with higher demand through 2025.

03-Feb-2025

INSIGHT: Valuation expectations continue to dog chems M&A dealflow

LONDON (ICIS)–The flow of exits and acquisitions in the chemicals sector continued slow in 2024, as an ongoing misalignment of valuation expectations between buyers and sellers continues to slow the pace of dealmaking. Since the pandemic, it has become substantially more difficult to gauge companies’ future earnings prospects, with performance data from the last five years tougher to compare to earlier periods, and the trajectory of future earnings more opaque. The pandemic era saw the period of widespread shutdowns and lockdowns followed by a huge rebound in demand, particularly for durable goods makers as consumers unable to leave their homes spent their pay on products and home improvement. STRUCTURAL SHIFTS HIT PROSPECTS The period since the pandemic has been an unnaturally long slump, described by LyondellBasell CEO Peter Vanacker last week as “the longest and deepest downturn of my career”, with energy prices and soaring interest rates hitting growth. While we may be nearing the end of that trough, if not this year then next, it remains difficult to gauge future earnings potential. Dow CEO Jim Fitterling noted in late January that some of the demand loss in Europe could be structural and may never come back, and questions remain over whether China economic growth will ever hit the levels expected a few years ago. With half a decade of choppy, unusual economic conditions and little indication of when demand will bounce back and to what extent, it has become much more difficult to assign a price tag for an asset based on future anticipated financial performance. Source: FTI Even including ADNOC’s takeover of Covestro – a €11.7 billion deal that has been agreed but is yet to close – dealflow in 2024 was extremely weak, only marginally up on 2020 and slower than each ensuing year since then. “The challenges in chemical deals stem from a persistent misalignment in valuation expectations between buyers and sellers, driven by atypical post-COVID industry performance and an uncertain outlook,” said consultancy FTI in a recent report on the sector. HIGH PRICES, TOUGH PROSPECTS The issue of seller expectations is complicated further by the fact that many purchases may have been made in the pre-pandemic years, meaning that prices paid may not match up to the reality of demand for some value chains. Private equity has long been a key player in the chemicals M&A market, and many fund managers are trapped between accepting a low or negative return on assets purchased when debt finance was cheap and expectations were higher, or continuing to hang on. This has resulted in holding periods far beyond the usual life cycle of a private equity fund. Traditionally, the sector model has revolved around selling assets three to five years after purchasing them but, with IPO exits difficult and the economic outlook uncertain, hold periods for chemicals firms are ballooning, drawing close to a decade in some cases. The pressure for exits comes alongside pressure from limited partners for private equity players to deploy capital that has accumulated over the last few years. CONDITIONS TO DRIVE DEALFLOW While conditions remain difficult, the need for private equity firms to try and sell businesses and to put capital to work could be a driver of big new investments, either in 2025 or in the near future beyond that. The spate of strategic reviews of European assets and the prevailing economic malaise in the region could also drive deal flow, as companies look to sell sheafs of assets deemed non-core or uncompetitive, and struggling producers look for a life raft. Dow promised progress on its ongoing review of European assets, and LyondellBasell is making progress with its assessments, with potential for several assets to be sold to one buyer, or a few units divested piecemeal. “The European sector, struggling with weak financial performance, might further attract international investors seeking diversification into chemicals,” FTI noted. TURNAROUND PURCHASES The question remains whether assets deemed uncompetitive by global chemicals producers – largely older, energy-intensive, lower-margin chemical plants – would be attractive to financial or institutional buyers. While large multinationals with a strong presence in lower-cost regions such as the US Gulf Coast and a desire to cut costs may not want to put in the time and money to make such units viable, private equity firms may. “We believe that hands-on private equity funds with operational value creation expertise may thrive in this market environment,” FTI said. “Private equity is likely to implement its performance improvement playbooks, but may also explore partnerships with strategic industry players.” Despite numerous indicators that dealflow will pick up in the mid-term, that question of buyer-seller expectations remains a difficult one. Private equity firms promise their investors above-market returns, and firms that purchased assets at the top of the market in the pre-pandemic era face a bitter pill when looking to sell them off in a low-growth, high financing cost environment. In the case of the Covestro deal, the purchase price represents a multiple of nearly 11 times 2023 earnings before interest, taxes, depreciation and amortization, a substantial sum. Compared to the company’s mid-cycle earnings target of €2.8 billion, the takeover price multiple dwindles to around five times EBITDA. Covestro’s EBITDA stood at €3.44 billion in 2017, €3.2 billion in 2018, and €1.6 billion in 2019, before rebounding to €3.1 billion in 2021. Earnings fell to €1.62 billion in 2022 and €1.08 billion in 2023, with expectations for last year standing between €1bn and €1.4 billion. This underlines the shift that occurred once energy prices in Europe started to intensify in the wake of the Ukraine war. While those target mid-cycle EBITDA levels may indeed come around again, the question remains as to when, or if, as Fitterling said, structural demand shifts mean Europe never fully bounces back? With no expectation of a V- or even U-shaped recovery once demand does start to pick up, sellers adjusting expectations to the new realities may be the only way to ever exit businesses. Insight by Tom Brown

03-Feb-2025

Samsung A&E bags $1.7bn deal to build UAE's first methanol plant

SINGAPORE (ICIS)–Abu Dhabi Chemicals Derivatives Co (TA’ZIZ) said on Monday it has awarded South Korea’s engineering firm Samsung E&A a $1.7 billion contract to build the first methanol plant in the UAE, which is slated to be completed in 2028. The plant, to be built in Al Ruwais Industrial City in western Abu Dhabi, will have a capacity of 1.8 million tonnes/year, TA’ZIZ said in a statement posted on the website of its parent firm Abu Dhabi National Oil Co (ADNOC). TA’ZIZ is a joint venture (JV) between ADNOC and sovereign wealth fund ADQ. Samsung A&E was formerly known as Samsung Engineering. “The [methanol] plant will enhance the UAE’s position as a leader in sustainable chemicals production and strengthen TA’ZIZ’s role in enabling ADNOC’s global ambition to lead the chemicals sector,” TA’ZIZ CEO Mashal Saoud Al Kindi said. The company said that the plant will be "powered by clean energy from the grid, making it one of the world’s most energy-efficient methanol plants". Set up in 2020 to develop industrial projects and diversify the economy away from oil in the UAE, TA'ZIZ is expected to produce 4.7 million tonnes/year of chemicals by 2028 in its initial phase, including methanol, low-carbon ammonia, polyvinyl chloride (PVC), ethylene dichloride (EDC), vinyl chloride monomer (VCM), and caustic soda. Several of these chemicals will be produced for the first time in the UAE. ADNOC is moving in the specialty chemical space as part of its growth. On 1 February, ADNOC announced that it is in talks with Austrian petrochemical firm OMV to acquire Canada's Nova Chemicals from Mubadala, another Abu Dhabi sovereign wealth fund. If the acquisition goes through, a new global polyolefins group combining Nova Chemicals, Borealis, and Borouge will be formed, it said. Borealis is a 75:25 joint venture between OMV and ADNOC, while Borouge is jointly owned by ADNOC (54%) and Borealis (36%).

03-Feb-2025

Europe top stories: weekly summary

LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 31 January. INSIGHT: Shipping caution remains over Suez route, Europe chemicals nervous Shipping companies are still in “wait and see” mode over a shift back to using the Suez Canal, while many chemical producers in Europe may hope it stays out of action for as long as possible. Europe BDO players eye China market fundamentals to gauge outlook for 2025 European butanediol (BDO) market players are eagerly awaiting a sense of long-term direction, with fundamentals largely unchanged since the start of the year and the impact of market movements in China after the Lunar New Year holidays a key focus. EU proposes import tariffs on Russian and Belarusian nitrogen-based fertilizers The European Commission has adopted a proposal to impose tariffs on a number of agricultural products from Russia and Belarus, as well as on certain nitrogen-based fertilizers. EU commercial vehicle sales up 5.5% in 2024 New commercial vehicle registrations in the EU increased by 5.5% in 2024, with trucks the only segment posting a decline, according to the latest figures from the European Automobile Manufacturers’ Association (ACEA). Indian phosphate buyers look to budget for clarity on subsidies After the phosphoric acid price settlement between Jordan’s JPMC and India’s Coromandel International Limited (CIL), phosphate buyers in India are now focusing on the upcoming budget for more clarity on the cost of importing product.

03-Feb-2025

India eyes new urea plant, hikes infrastructure capex, cuts taxes

MUMBAI (ICIS)–India plans to build a new 1.27 million tonne/year urea plant in the eastern Assam state to cut its reliance on imports, while the government allocating a bigger infrastructure budget in the coming fiscal year ending March 2026. New plant – eighth urea unit of same capacity to be built since 2019 2025-26 infrastructure budget at Rs11.2 trillion Tax cuts to boost consumption amid economic slowdown “Our government had re-opened three dormant urea plants in the eastern region. To further augment urea supply, a plant will be set up at Namrup, Assam,” India’s finance minister Nirmala Sitharaman said during her budget presentation before parliament on 1 February. This will be the eighth plant with the same capacity that will be built in the south Asian country since 2019. It is expected to reduce India’s dependence on urea imports. In fiscal year ending March 2024, India’s domestic urea production was at 31.4 million tonnes, up 20% from the previous year. Amid growing domestic capacity, imports of the material in January-October 2024 declined by 31% year on year to 4.1 million tonnes, official data show. Separately, the government has announced plans to increase its capital expenditure on infrastructure projects by about 1% to Indian rupees (Rs) 11.21 trillion ($129 billion) for 2025-26. While the government had initially allocated Rs11.1 trillion for infrastructure projects for fiscal year 2024-25, it brought down its allocation to Rs10.18 trillion in its revised estimate for the current year. The government has allotted Rs2.72 trillion to the Ministry of Transport & Highways for the development of road infrastructure across the country. The allocation for the Indian Railways has also remained unchanged at around Rs2.52 trillion which will help support the continued development and modernization of India’s rail networks. “Infrastructure development remains a cornerstone of India’s growth strategy, with targeted investments to enhance connectivity and reduce logistics costs,” Sitharaman said. The government also plans to extend Rs1.5 trillion in interest-free loans to states to support infrastructure projects. This is expected to encourage public-private partnerships (PPPs) to develop new roads, highways and metro projects which will increase the consumption of construction-related segments such as cement, steel, paints and various chemical and petrochemical products. Budget allocation for the National Green Hydrogen Mission has been doubled to Rs6 billion from the current fiscal year. It is expected to attract investment and help India achieve its goal of producing 5 million tonnes/year of green hydrogen by 2030. Meanwhile, the government raised the starting point for income taxes to Rs1.2 million/year from Rs700,000/year previously. "The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment," Sitharaman said. The Indian government aims to keep its fiscal deficit at 4.4% of GDP in the current financial year 2024-25, which is in line with its aim to bring down the fiscal deficit to under 4.5% by 2025-26. India’s GDP growth for 2025-26 is projected to range between 6.3% and 6.8%, according to the Ministry of Finance. The projected GDP growth rate of 6.3-6.8% for 2025-26 will be the lowest since 2020-21, when India registered a negative growth of 5.8%. India’s GDP stood at 9.7% in 2021-22, 7% in 2022-23 and 8.2% in 2023-24. India’s GDP is estimated to grow at 6.4% in the current financial year ending March 2025, down from earlier forecast of between 6.5% to 7% growth. A slowdown is projected due to a weak manufacturing sector, persistent food inflation, and weak urban consumption combined with stagnant job growth. Inflation is expected to decline in fiscal year 2025-26, with the Reserve Bank of India (RBI) projecting inflation to average at 4.6% and 4% in Q1 and Q2 of FY 2025-26, respectively. Focus article by Priya Jestin ($1 = Rs87.15)

03-Feb-2025

UPDATE: Oil gains, Asia petrochemical shares fall as Trump starts trade war

SINGAPORE (ICIS)–Oil prices jumped while shares of petrochemical firms in Asia tumbled on Monday, after US President Donald Trump imposed tariffs on China, Canada and Mexico. Canada, Mexico vow to retaliate against US tariffs China warns of unspecified countermeasures Trade war jitters send Asian bourses tumbling Trump signed on 1 February executive orders on the tariffs, firing the first shots of a potential new trade war, just days into his presidency. Prices in $/bbl as of 06:12 GMT) Latest Previous Change Brent April 76.41 75.67 0.74 WTI March 73.94 72.53 1.41 US WTI crude rose by more than $1/barrel amid fears of a disruption in crude supply from two of the US' largest suppliers – Canada and Mexico. Effective 4 February, the US will apply a 25% duty on goods from the two countries, while a 10% levy applies on Chinese goods. Following the announcement, Canada and Mexico declared their intentions to retaliate against the tariffs, while China pledged to challenge the US tariffs at the World Trade Organization (WTO). For the Canadian energy sector, the Trump administration decided to impose a tariff of only 10%. Canada is a key supplier of crude oil to the US, with the US importing around 4 million barrels/day from Canada or 61% of total imports. This crude oil is a heavier crude, on which many US refineries are configured to run on, particularly in the midwestern region of the country, according to Dutch banking and financial information services provider ING. “Given the importance of Canadian oil to the US, it is not surprising to see that WTI is trading stronger this morning,” ING said. In a statement on 1 February, American Fuel & Petrochemical Manufacturers (AFPM) president and CEO Chet Thompson said: "American refiners depend on Canadian and Mexican crude oil to produce the affordable, reliable fuels consumers need every day." “We are hopeful a resolution can be quickly reached with our North American neighbors so that crude oil, refined products and petrochemicals are removed from the tariff schedule before consumers feel the impact.” ING said: “More broadly, an escalation in trade tensions is not supportive for risk assets with it souring sentiment and raising concerns over the impact it could have on global growth, which means the strength in crude oil prices may be short-lived.” “The strength in the US dollar will also likely provide some headwinds not just for oil but the broader commodities complex.” The dollar index, which measures the strength of the US dollar against six major global currencies, rose to 109.60 in early trading on Monday, up from 108.370 in the previous session. The stronger US dollar saw the Indian rupee (Rs) plunging to a record low of Rs87.1450 on Monday, breaching the Rs87-per US dollar mark for the first time. Since October last year, the rupee has lost nearly 4% of its value. Japan’s yen (Y) was more resilient, losing 0.2% to Y155.53 per US dollar. EYES ON CHINA Apart from filing a complaint with the WTO, China's commerce ministry announced that it would take unspecified countermeasures to US’ fresh tariffs. No immediate tariffs were announced as the world's second-biggest economy is in the middle of its Lunar New Year holiday, with its markets due to re-open on 5 February after an eight-day break. “Seeing that the tariff hike is with an additional 10%, which is relatively small – don’t forget that tariffs against Chinese goods entering the US have been in place for the last 7 years – we expect that the initial retaliation from China's side is likely to be mild,” ING said. “We do feel that if pushed into a corner, China's retaliation could be stronger than what most expect, but at this stage we haven't reached that point yet,” it added. “Overall, the path to avoid a more destructive US-China trade war is a narrow one.” ING expects “a very modest impact on China’s growth” from Trump’s initial move. In 2024, China’s exports to the US grew by 4.9% to $524 billion, bringing its trade surplus with the US to $360 billion, partly due to some front loading of exports toward the end of the year ahead of promised US tariffs, according to ING. “Another 10% tariff will further squeeze low margin exports to the US and likely will price out a portion of exports,” ING said. “The more vulnerable sectors will likely be those with easy replacements, such as textiles and certain electronics and machinery goods.” Separately, the 25% tariff hike on Mexico will disrupt one of China's primary export re-routing channels, according to ING. As a result, China may redirect exports to alternative markets, such as ASEAN and Latin American countries, if the US tariffs on Mexican goods remain or escalate, it said. “China is likely to focus on boosting trade ties with other countries to help offset a more protectionist US,” ING added. Trade war jitters sent bourses in Asia tumbling along with shares of petrochemical firms on Monday. At 06:00 GMT, Japan's Mitsui Chemicals and Asahi Kasei was down 2.96% and 3.17% in Tokyo, respectively, while South Korean producer LG Chem slumped by 6.53% in Seoul. Japan's benchmark Nikkei 225 index was 2.0% lower at 38,686.96, while South Korea's KOSPI fell by 2.80% at 2,446.46. Taiwan’s Formosa Petrochemical Corp fell by 6.00% in Taipei, while Thailand producer PTT Global Chemical was 2.33% lower in Bangkok. On the first trading day after the Lunar New Year holidays, Taiwan's benchmark TAIEX slumped by 3.56% to 22,689.05, while South Korea's key KOSPI fell nearly 3.00% at 2,443.10. Hong Kong's Hang Seng Index fell by 1.07% to 20,008.78, while Japan's bellwether Nikkei 225 was down by 2.75% at 38,485.37. Focus article by Nurluqman Suratman (updates stock and oil prices, adds details throughout) Thumbnail image: At Qingdao Port in Shandong province, China on 29 January 2025. (Costfoto/NurPhoto/Shutterstock)

03-Feb-2025

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