Polyethylene (PE)

HOUSTON (ICIS)–Rates for shipping containers from Asia to the US East Coast were largely flat and rates to the West Coast fell by 5%, and the Panama Canal will begin allowing swapping of slots on 1 January, highlighting shipping news this week. Container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), which are shipped in pellets. They also transport liquid chemicals in isotanks. Global average rates ticked lower by 1% this week, according to supply chain advisors Drewry and as shown in the following chart. Rates from Asia to New York were largely stable on the week while rates from Shanghai to Los Angeles fell by 5%, as shown in the following chart. Drewry expects spot rates to remain stable over the coming week. Drewry’s assessment has rates to the East Coast about $700/40-foot equivalent units (FEU) higher than to the West Coast. Online freight shipping marketplace and platform provider Freightos has rates to both coasts nearly at parity slightly higher than Drewry’s East Coast rate. Judah Levine, head of research at Freightos, said transpacific ocean rates are about 35%-45% below peak levels seen in July now that the peak season has ended. He said upward pressure remains from stronger than normal demand as some shippers are frontloading volumes ahead of expected tariff increases from the new administration as well as the possibility of another work stoppage at US East Coast ports as the 15 January deadline to finalize a new collective bargaining agreement nears. Levine noted that Lunar New Year starts at the end of January this year, which is earlier than usual. The unusual parity of transpacific rates to both coasts may point to some shift of demand to the West Coast due to January strike concerns, Levine said. LIQUID TANKER RATES – USG-BRAZIL TICKS HIGHER Overall, US chemical tanker freight rates was largely stable this week for several trade lanes, with the exception being the USG-to-Brazil trade lane as that market picked up this week following activity during the APLA conference in Columbia. Part space has limited availability as most owners are awaiting COA nominations. USG-Asia trade lane remains steady as spot tonnage remains readily available and multiple cargoes of glycol and styrene are interested in December and January loadings, supporting the market. Similarly, on the transatlantic front, the eastbound leg remains steady as there was limited space available which readily absorbed the few fresh inquiries for small specialty parcels stemming from the USG bound for Antwerp. Various glycol, ethanol, methyl tertiary butyl ether (MTBE) and methanol parcels were seen quoted to ARA and the Mediterranean as methanol prices in the region remain higher. Additionally, ethanol, glycols and caustic soda were seen in the market to various regions. However, it is also clear that space is becoming very tight until the end of the year, keeping rates firm. The CPP market firmed, limiting the number of tankers offering into the chemical market, thus keeping rates stable. Bunker prices rose, mainly due to the increase in energy prices following continued geopolitical concerns. PANAMA CANAL TO ALLOW SWAPPING OF SLOTS The Panama Canal will begin allowing swapping and substitutions of booking slots between container vessels with some conditions beginning 1 January, the Panama Canal Authority (PCA) said. The conditions are that both vessels must be the same type and must belong to the containership segment, both vessels must belong to the same vessel classification (Neopanamax, Super or Regular), and both vessels must be transiting in the same direction. Also, for swaps, vessels must have similar transit restrictions, and for substitutions, the new vessel must have similar or lesser transit restrictions, both vessel operators must belong to services under the same cooperative working agreement (Global Alliances or VSA), and the booking date of the vessels involved in the swap or substitution must be within the effective date of the services and of the Alliance or VSA. All other Long Term Slot Allocation method (LoTSA) and ordinary booking slots rules remain in effect. Additional reporting by Kevin Callahan

22-Nov-2024

HOUSTON (ICIS)–The US Environmental Protection Agency (EPA) could make a decision any day that would allow California to adopt an aggressive electric vehicle program, triggering similar programs in 12 other states and territories that will likely become the target for repeal under President-Elect Donald Trump. During his campaign, Trump has expressed opposition to policies that favor one drive-train technology over another, saying that he would  "cancel the electric vehicle mandate and cut costly and burdensome regulations". California's EV program is called Advanced Clean Cars II (ACC II), and it works by requiring EVs, fuel cells and plug-in hybrids to make up an ever-increasing share of the state's auto sales. Other programs that encourage the adoption of EVs could be more vulnerable to repeal and rollbacks under Trump ACC II COULD BOOST EV DEMAND IN 13 STATESBefore California can adopt its ACC II program for EVs, it needs the EPA to grant it a waiver from the US Clean Air Act.  The California Air Resources Board (CARB) said it is expecting a decision from the EPA at any time. If the EPA receives the waiver, then it will trigger the adoption of similar ACC II programs the following states and territories. The figures in parentheses represent each state's share of light-vehicle registrations. California (11.6%) New York (5.6%) Colorado (1.8%) Oregon (1.0%) Delaware (0.3%) Rhode Island (0.3%) Maryland (1.8%) Vermont (0.3%) Massachusetts (2.1%) Washington (1.9%) New Jersey (3.4%) Washington DC (not available) New Mexico (0.5) Source: CARB In total, the 13 states and territories represent at least 30.6% of US light-vehicle registrations, according to CARB. HOW THE ACCII SUPPORTS EV DEMANDThe following chart shows the share of electric-based vehicles that would need to be sold in California by model year under the state's ACC II regulations. Programs in other states and territories have similar targets. ZEV stands for zero-emission vehicle and includes EVs and vehicles with fuel cells Source: California Air Resources Board REPEALING THE ACC IIThe key to California's ACC II programs is the EPA's decision to grant it a waiver to the Clean Air Act. Trump will likely revoke that waiver if it is granted before he takes office, according to the law firm Gibson Dunn. It expects that California will respond by threatening to retroactively enforce the ACC II program once a friendlier president takes office after Trump's term ends in four years. Auto makers could choose to take California's threat seriously and reach an agreement with the state. A similar scenario unfolded during Trump's first term of office in 2016-2020 that involved California's earlier Advanced Clean Cars (ACC) program, according to Gibson Dunn. That program also required a waiver from the EPA, and the dispute was resolved only after Joe Biden restored the waiver after becoming president in 2021. For the possible dispute over the ACC II program, it could take the courts determine whether California can retroactively enforce the program. FEDERAL PROGRAMS ARE MORE VULNERABLE TO REPEALThe following federal programs could be more vulnerable to roll backs under Trump. The Environmental Protection Agency's (EPA) recent tailpipe rule, which gradually restricts emissions of carbon dioxide (CO2) from light vehicles. The Department of Transportation's (DoT) Corporate Average Fuel Economy (CAFE) program, which mandates fuel-efficiency standards. These standards became stricter in 2024. A tax credit worth up to $7,500 for buyers of EVs under the Inflation Reduction Act (IRA). Trade groups have argued that the CAFE standards and the tailpipe rules are so strict, they function as effective EV programs. They allege that automobile producers can only meet them by making more EVs. The following table shows the current tailpipe rule. Figures are listed in grams of CO2 emitted per mile driven. 2026 2027 2028 2029 2030 2031 2032 Cars 131 139 125 112 99 86 73 Trucks 184 184 165 146 128 109 90 Total Fleet 168 170 153 136 119 102 85 Source: EPA The following table shows the fuel efficiency standards under the current CAFE program. Figures are in miles/gallon. 2022 2027 2028 2029 2030 2031 Passenger cars 44.1 60.0 61.2 62.5 63.7 65.1 Light trucks 32.1 42.6 42.6 43.5 44.3 45.2 Light vehicles 35.8 47.3 47.4 48.4 49.4 50.4 Source: DOT Gibson Dunn expect Trump's administration will rescind the tailpipe rule and roll back the CAFE standards to levels for model year 2020 vehicles. That would lower the CAFE standards for light vehicles to 35 miles/gal. EVS AND CHEMICALSEVs represent a small but growing market for the chemical industry, because they consume a lot more plastics and chemicals than automobiles powered by ICEs. A mid-size EV contains 45% more plastics and polymer composites and 52% more synthetic rubber and elastomers, according to a May 2024 report by the American Chemistry Council (ACC). EVs also contain higher value materials such as carbon fiber composites and semiconductors, making the total value of chemistry in the automobiles up to 85% higher than in a comparable ICE, according to the ACC. The following chart compares material consumptions in EVs and ICEs. Source: ACC EVs have material challenges that go beyond making them lighter and more energy efficient, such as managing heat from their batteries and tolerating high voltages. Major chemical and material producer are eager to develop materials that can meet these challenges and command the price premiums offered by EVs. Most have EV portfolios and prominently feature them at trade shows A rollback of US incentives for EVs could slow their adoption and weaken demand for these materials. Materials most vulnerable to these rollbacks would include heat management fluids and chemicals used to make electrolytes for lithium-ion batteries, such as dimethyl carbonate (DMC) and ethyl methyl carbonate (EMC). Other materials used in batteries include polyvinylidene fluoride (PVDF) and ultra high molecular weight polyethylene (UHMW-PE). Insight by Al Greenwood Thumbnail shows an EV. Image by Michael Nigro/Pacific Press/Shutterstock

21-Nov-2024

SAO PAULO (ICIS)–Here are some of the stories from ICIS Latin America for the week ended on 16 November. NEWS Brazil to investigate alleged US, Canada PE dumpingBrazil is to start an investigation into polyethylene (PE) arriving on its shores from the US and Canada and whether the material constituted dumping, the government said. Unipar sees light at tunnel end as prices rise, Argentina revivesManagement at Brazil’s chloralkali chain producer Unipar this week held onto improved financial results in Q3, quarter on quarter, to assert the industry may be finally going through the beginning of the end of the downturn. Mexico confident US will realize tariff-free trade benefits both – SheinbaumRenegotiation in 2026 will be key for Mexico to show the US how the United States–Mexico–Canada Agreement (USMCA) is equally beneficial for both countries, the Mexican president said this week. Pemex targets petrochemicals, fertilizers expansion, $2.4-billion savings in 2025Pemex is to overhaul its La Cangrejera and Morelos petrochemicals complex in Mexico’s southern state of Veracruz to sharply increase production, the state-owned energy major said this week. INSIGHT: Mexico’s manufacturers hopeful USMCA renegotiation could spare them from tariffsPolicymakers and companies in Mexico are coming to terms with a potential shift in trade policies in the US after Donald Trump’s decisive victory in the presidential election last week. Mexico in strong position to renegotiate USMCA, tariff panic premature – Braskem Idesa execA potential US import tariff of 10% on Mexican goods is looming large on the country's export and petrochemicals-intensive manufacturing sectors, but it is early days and the worries are premature, according to the head of institutional relations at polyethylene (PE) producer Braskem Idesa. Brazil's Petrobras begins commercial operations at gas processing unit in RioPetrobras has begun commercial operations at its Natural Gas Processing Unit (UPGN) at the Boaventura Energy Complex in Itaboraí, Rio de Janeiro state, the Brazilian state-owned energy major said on Monday. PRICING LatAm PP domestic, international prices stable on sufficient supply, soft demandDomestic and international polypropylene (PP) prices were assessed unchanged this week across Latin American countries. LatAm PE domestic prices steady to lower on weak demand, sufficient supplyDomestic polyethylene (PE) prices were assessed as steady to lower across Latin American (LatAm) countries while international prices were unchanged this week.

18-Nov-2024

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 15 November. Trump to bring limited tariffs; higher growth, rates – economists Under US President Donald Trump, US chemical companies will unlikely see the full-blown tariffs that he has proposed during his campaign, but they will operate under a faster growing economy with higher inflation and interest rates that will settle at an elevated rate, economists at Oxford Economics said on Monday. INSIGHT: Mexico’s manufacturers hopeful USMCA renegotiation could spare them from tariffs Policymakers and companies in Mexico are coming to terms with a potential shift in trade policies in the US after Donald Trump’s decisive victory in the presidential election last week. Canada ports prepare to resume operations, but timeline still unclear The Port of Vancouver and other Canadian West Coast ports as well as the Port of Montreal were preparing on Wednesday to resume operations, but the exact timeline remains unclear, officials said in updates. US exporters should book cargoes 4-6 weeks in advance; ILA-USMX talks break down US exporters are being urged to book outgoing shipments four to six weeks in advance as US and Canadian port labor issues are ongoing and could coincide with the pre-Lunar New Year peak season on the Asia-to-US trade route. Brazil to investigate alleged US, Canada PE dumping Brazil is to start an investigation into polyethylene (PE) arriving on its shores from the US and Canada and whether the material constituted dumping, the government said. Canada Port of Montreal to resume operations on Saturday The Port of Montreal will resume operations on Saturday, 16 November, at 07:00 local time, following labor disruptions that started on 31 October and a subsequent lockout of about 1,200 dock workers.

18-Nov-2024

LONDON (ICIS)–Here are some of the top stories from ICIS Europe for the week ended 15 November. Europe PET hit by multiple factors pulling market in different directions Polyethylene terephthalate (PET) sources in Europe are faced with a plethora of circumstances trying to shape the market, which in the end may result in a degree of stability. Crude markets face substantial 2025 surplus as China demand falters – IEA Global crude supply growth is likely to outstrip demand by over a million barrels/day in 2025, the International Energy Agency (IEA) said on Thursday, with the “marked” slowdown in China consumption the main drag on consumption this year. INSIGHT: European cracker shutdowns could open market to US ethylene exports European ethylene producers could be planning more cracker shutdowns, with the lost capacity being replaced by imports from the US. Shell wins appeal in Dutch emissions caseThe Netherlands court ruling mandating that Shell cut its total carbon emissions by 45% by 2030 has been thrown out, the oil and gas major said on Tuesday. Europe PE, PP adapt value proposition in face of evolving market European polyethylene (PE) and polypropylene (PP) are evolving as the world they occupy steadily changes.

18-Nov-2024

SINGAPORE (ICIS)–South Korean refiner S-Oil's new petrochemical complex in Ulsan is now 42% complete as of end-October and is on track for completion in 2026. Shaheen accounts for about 87% of full-year 2024 capex Project progress slightly ahead of schedule S-Oil swung to Q3 net loss on poor refining, petrochemical margins Construction of the $7bn project called Shaheen – Arabic word for falcon – at the Onsan Industrial Complex of Ulsan City started in March 2023. Its mechanical completion is targeted by the first half of 2026. Total capital expenditure (capex) for the Shaheen project is projected at W2,716 billion ($1.95 billion) in 2024, up 85% year on year, and accounts for about 87% of S-Oil's overall capex this year. The company’s full-year capex at W3,136 billion, which includes costs of upgrade and maintenance works as well as marketing-related expenses, represents a 54% increase from 2023 levels. The Shaheen project will have a 1.8m tonne/year mixed-feed cracking facility; an 880,000 tonne/year linear low density polyethylene (LLDPE) unit; and a 440,000 tonne/year high density polyethylene (HDPE) plant. The site will have a thermal crude-to-chemical (TC2C) facility, which will convert crude directly into petrochemical feedstocks such as liquefied petroleum gas (LPG) and naphtha, and the cracker is expected to recycle waste heat for power generation in the refinery. Saudi Aramco, the world’s biggest crude exporter, owns more than 63% of S-Oil. The project update was included in S-Oil’s presentation slides on its Q3 financial results released on 4 November. The company swung to a Q3 net loss of W206 billion amid a sharp decline in refining and petrochemical earnings. in South Korean won (W) billion Q3 2024 Q3 2023 % Change Jan-Sept 2024 Jan-Sept 2023 % Change Revenue 8,841 9,000 -1.8 27,720 25,897 7.0 Operating income -415 859 200 1,411 -85.8 Net income -206 545 -61 788 The petrochemicals unit of S-OIL posted an operating income of W5.0 billion in the third quarter, an 89% year-on-year drop. Paraxylene (PX) and benzene markets weakened in Q3 due to increased supply amid reduced gasoline blending demand and restarts of production facilities after turnarounds. The company's PX spread to naphtha weakened to $271/tonne in Q3 from $425/tonne in the same period last year, while the benzene-naphtha spread rose to $315/tonne from $251/tonne in the same period a year earlier. In the downstream olefin market, polypropylene (PP) was bearish in the third quarter due to "abundant regional supply amid weak downstream demand". The refining unit posted an operating loss of W573.7 billion in the third quarter, swinging from the W666.2 billion profit in the same period a year earlier. The loss in the refining segment was mostly due to the one-off impact from the decline in oil prices and foreign exchange rates. On market conditions, the company said that the supply-demand environment and margins for refiners in Asia is expected to "gradually improve due to reduced operating rate from low margin condition and heavier maintenances year over year, amid continued stockpiling if winter heating oil". For Q4, the company expected the PX and benzene markets to be supported by fresh demand from new downstream capacities while gasoline demand stays slow. For downstream olefin markets, S-Oil said that PP and propylene oxide (PO) markets may show modest recovery "depending on the impact of China's economic stimulus measures amid ongoing capacity additions". Focus article by Nurluqman Suratman ($1 = W1,395)

18-Nov-2024

HOUSTON (ICIS)–Rates for shipping containers from east Asia and China to the US were largely stable this week but exporters are being urged to book outgoing shipments 4-6 weeks in advance as labor issues between union dock workers and US Gulf and East Coast ports stalled. For US companies working to export excess volumes to balance year-end inventories, those shipments need to be going out this week. For importers, rates from Asia to the US West Coast fell by 2% and are down by almost 3% over the past two weeks, according to supply chain advisors Drewry and as shown in the following chart. The chart also shows rates from Asia to New York were largely stable, down by 0.20% and by 0.36% over the past two weeks. Global average rates held steady at around $3,440/FEU (40-foot equivalent unit), as shown in the following chart. With the breakdown in negotiations between the US Maritime Alliance (USMX), representing the ports, and the International Longshoremen’s Association (ILA), representing the dock workers, and with the expectation of significant tariff increases under the administration of President-elect Donald Trump, analysts expect a surge of imports over the last few weeks of the year. The National Retail Federation (NRF) has revised its forecast for the rest of the year on the developments. Ports have not yet reported October’s numbers, but the NRF/Hackett Associates Global Port Tracker projected the month at 2.13 million TEU (20-foot equivalent units), up 3.7% year on year. November is forecast at 2.15 million TEU, up 13.6% year on year, and December at 1.99 million TEU, up 6.1%. That would bring 2024 to 25.3 million TEU, up 13.6% from 2023. Container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), are shipped in pellets. They also transport liquid chemicals in isotanks. CANADA PORT LABOR ISSUES The Port of Montreal will resume operations on Saturday, 16 November, at 07:00 local time, following labor disruptions that started on 31 October and a subsequent lockout of about 1,200 dock workers. The Port of Vancouver and other Canadian west coast ports resumed operations on Thursday after a strike and lockout of about 730 foremen who supervise more than 7,000 dock workers that began on 4 November. The Port of Vancouver is Canada’s largest port by far. More than Canadian dollar (C$) 22 million ($15.7 million) of chemistry and plastic products was traded through Vancouver and other west coast ports each day in 2023, for a total of C$8 billion for the year, according to the Chemistry Industry Association of Canada (CIAC). LIQUID CHEM TANKER RATES STABLE US chemical tanker spot rates were overall steady this week for most trade lanes, while vessel demand continues to remain soft for various routes. One exception is rates from the USG to the Mediterranean, which surged as interest to this region remains steady. There was an uptick on cargoes from various regions to Montreal as shippers work to deliver and pick up material before the ice season closes for winter transit and soon will require ice class vessels. The US Gulf to ARA remains soft and solid for contractual cargoes and as CPP tonnage continues to participate in the chemical sector. If it persists it could continue to pressure to the market even further. Similarly, that situation exists for volumes on the USG to the Caribbean and South America trade lanes. From the USG to these regions, space among regular carriers remains available, due to a lack of interest. However, for the USG to Asia spot volumes continue to be weak as there seems to be plenty of prompt space available. Mainly parcels of monoethylene glycols (MEG), ethanol and methanol to this region seems to have provided any support to the weak market. Additionally, ethanol, glycols and caustic soda were seen in the market in various directions. Bunker prices remain stable mainly due to the continued the volatility in energy prices week on week. PANAMA CANAL MAINTENANCE The West Lane of Miraflores Locks will be out of service due to concrete maintenance on the West Southend approach wall for about 48 hours from early on 23 November until late on 24 November, according to the Panama Canal Authority (PCA). The number of slots available to super and regular vessels will be reduced because of the maintenance. Once the maintenance is complete, the 20 slots for supers and the six slots for regular vessels will be reinstated for booking dates beginning 25 November, the PCA said. As of September, the PCA has 36 slots per day after limiting transits late in 2023 because of a severe drought in the region. With additional reporting by Kevin Callahan and Stefan Baumgarten

15-Nov-2024

SAO PAULO (ICIS)–Brazil is to start an investigation into polyethylene (PE) arriving on its shores from the US and Canada and whether the material constituted dumping, the government said. As previously reported by ICIS, the proposals to investigate came from polymers major Braskem and were backed by Brazil’s chemicals trade group representing producers, Abiquim. Braskem is the dominant PE producers in Brazil, and antidumping duties (ADDS) on US- and Canada-originated PE would considerably prop up its domestic market position. The start of investigation proceedings was published in Brazil’s Diario Oficial da Uniao (Official Gazette). The investigation is to be carried out by the Department of Commercial Defense (Decom), which is part of the Ministry of Industry’s Secretary of Foreign Trade. Braskem filed on July 31 a petition to initiate an investigation into the practice of dumping of PE resins exports to Brazil with US or Canadian origin. The analysis of the evidence of dumping is to consider the period from April 1, 2023 to March 31, 2024, while the period for analyzing potential damage caused to domestic producers is to consider the period from April 1, 2019 to March 31, 2024. “Due to the large number of producers/exporters from the US and Canada identified in the detailed data on Brazilian imports … the producers or exporters responsible for the largest reasonably investigable percentage of the export volume of the exporting country will be selected to send the questionnaire,” said Decom. “The absolute dumping margins determined for the purposes of this document reached $220.95/tonne and $264.99/tonne, and the relative margins were 21.4% and 26.9% for the US and Canada, respectively. It can be inferred that, if such dumping margins did not exist, domestic industry prices could have reached higher levels, reducing or even eliminating the effects of the investigated imports.” Braskem said earlier in November it is lobbying the Brazilian government to extend ADDs on polyvinyl chloride (PVC) beyond 2025 when they are due to expire. In October, the government implemented higher import tariffs on several chemicals, also after heavy pressure by domestic producers and their trade group Abiquim. Additional reporting by Bruno Menini

14-Nov-2024

SAO PAULO (ICIS)–A potential US import tariff of 10% on Mexican goods is looming large on the country's export and petrochemicals-intensive manufacturing sectors, but it is early days and the worries are premature, according to the head of institutional relations at polyethylene (PE) producer Braskem Idesa. Sergio Plata, who is also the president of the Association of Industrialists of Veracruz State (Aievac), home to a large petrochemicals hub, added that Mexico is not only a supplier to the US – the country exports around 80% of what it produces to the US – but it is also a key consumer of US goods. Plata said this will be a crucial factor that will allow Mexico to renegotiate the United States-Mexico-Canada Agreement (USMCA) from a position of strength when it is up for renewal in 2026. Although the focus in the past week has been on how Mexico could be hit by tariffs when Trump becomes US president – with some analysts forecasting a negative impact of 0.5-1% of GDP in a full year – Plata made a call to stay calm and carry on – for now. He argues that the tariffs will not be imposed overnight, saying that such topics are likely to be addressed within the context of the USMCA renegotiation, in more than a year’s time. Moreover said Plata, in Donald Trump’s first term, he ended up dropping some campaign promises under pressure from different lobby groups, not least businesses which could see input costs spike if new tariffs are implemented. “These [proposals would be] important challenges for Mexico, and I believe 2026’s USMCA renegotiation will be key for the entire North America so we can continue being and become more competitive,” said Plata. “Regarding tariffs, at this time we can only wait until the parties sit at the negotiating table, so we can have a dialogue with the US government. What I can certainly say is that NAFTA first and now USCMA have greatly served the three countries, a success which we should not measure only based on the trade balance.” The US trade balance – or deficit – is a key theme running through Trump’s tariff proposals as he wants to re-invigorate the US manufacturing sector, and produce as much as possible domestically. Indeed, the US consistently runs a large trade deficit with China and Mexico, its two main sources of manufactured goods. In 2022, Mexico exported goods worth $452 billion to the US, according to data from Comtrade via Trading Economics; the US, in turn, exported goods worth $323 billion to Mexico – a difference of nearly $130 billion. According to Plata, nothing is written about tariffs, at least within the USMCA, and issued a reminder of what happened when the USCMA was first signed, as a successor to NAFTA after Trump’s first administration demanded changes to a free trade deal it deemed disadvantageous. Despite the furore, tariffs were kept off the table because the US government eventually saw that tariffs within the USCMA would also negatively affect its own companies. Whether an emboldened Trump, with a clear popular mandate to implement his promises, will also give in this time remains to be seen. “We would be going too far ahead of ourselves if we already think a 10% tariff on Mexico will be imposed. We Mexicans must now make it clear to the US that the commercial relationship should not only be measured on the trade deficit, but rather on what Mexico gives to the US as well, and not just the other way around,” said Plata. “Because Mexico also generates North America-wide economic development. I can speak for what I know best and only in this region, only in the south of the state of Veracruz, we import from the US around 1.3 million tonnes/year of chemicals and petrochemicals, resulting in billions of imports. The figures are important both ways and this will be brought to a potential negotiating table.” SHEINBAUM AND TRUMPA fascinating aspect for the years to come will be the personal relationship between the US and Mexican presidents, if any – Trump and Claudia Sheinbaum could not be more different ideologically. Sheinbaum’s backing of a supermajority in parliament of two-thirds may cause further friction going forward on top of that caused by the approval on 11 September of a controversial judicial reform which is opposed from many fronts. The US ambassador to Mexico has publicly sounded the alarm about Morena’s judicial reform (see statement here), as did the US chemicals trade group the American Chemistry Council (ACC) and nine other industrial peers who wrote to the US cabinet to “convey their concern” about the proposals. “Regarding the judicial reform, we have the basis for the state of law in the Constitution, and that is a framework that provides certainty,” said Plata. “The devil is in the details, and in coming weeks and months we’ll evidently have to pay attention in the secondary stages of the reform’s debate in parliament, which must be open to listen to the specialists,” said Plata. The Braskem Idesa executive preferred to bring the conversation back to Mexico’s 2026 challenge. One-party Morena reforms allowing, Plata said the current Mexican cabinet would head into a potential USMCA renegotiation in a strong position. “We are in a good position to negotiate, now more than ever, and this is because as a country we are in much better place than we were at in 1994, when Mexico signed NAFTA. At the time, the US and Mexico did not have the solid trade relationship they have today,” he said. “On the Mexican side, many things have changed for the better. Since the 1990s, we have signed more than 50 free trade agreements (FTAs) and the state has now excellent trade negotiators. As an industry and as a country, we are well prepared to sit at the table and reach a good outcome in 2026.” – ICIS will publish on Wednesday (13 November) the second part of this interview, focusing on Sheinbaum’s domestic policies towards chemicals. As President-Elect, she approached the industry and travelled to its Veracruz hub, gaining praise from Plata as well as other industrial groups. As President, is she keeping up that focus on fostering chemicals? Plata said she is – Read this Insight article for wider analysis on how new trade policies in the US could hit the Mexican economy Interview article by Jonathan Lopez

12-Nov-2024

HOUSTON (ICIS)–Under US President Donald Trump, US chemical companies will unlikely see the full-blown tariffs that he has proposed during his campaign, but they will operate under a faster growing economy with higher inflation and interest rates that will settle at an elevated rate, economists at Oxford Economics said on Monday. Oxford is forecasting what it calls a limited Trump scenario, under which his administration will not fully adopt the policies he proposed during his campaign. Tariffs will be limited, targeted and phased in, while Congress will limit growth in the government deficit by restraining some of his tax cuts and spending measures. Oxford's baseline scenario for 2025 does not change much because it is assuming that Trump will focus most of his first year in office on extending the tax cuts of his earlier administration, said Ryan Sweet, chief US economist for Oxford Economics. He made his comments during a presentation. The consultancy's forecast for 2025 GDP is a tenth of a point higher versus its estimate in October, he said. Inflation will rise by a tenth of a point in 2025. Trump is inheriting a strong economy, so there is little risk of recession. In these initial years, the biggest effect on the US economy will be tax cuts, and these should increase growth in GDP, said Bernard Yaros, lead US economist for Oxford. After 2026, Oxford assumes Trump will adopt some of his immigration restrictions, and it is expecting GDP growth to fall below its earlier forecast. Stricter immigration policies will reduce the supply of labor and slow down the consumption of goods and services. LIMITED TARIFFSOxford expects the Trump administration will not impose the widespread tariffs it proposed during its campaign, which included 60% duties on Chinese imports and baseline tariffs of 10-20% on all imports. Yaros said these campaign proposals were likely negotiating tactics. Sweet expects that Trump will require Congress to pass some of his tariffs, and legislators will not pass such high rates, Sweet said. In other cases, advisors and trade representatives will restrain Trump. For China, Trump will likely impose tariffs of 25% on major categories, such as machinery, electronics and chemicals, Yaros said. For the EU, Canada and Mexico, Trump will likely impose very targeted tariffs on steel, aluminum, base metals and motor vehicles, Yaros said. For Canada and Mexico in particular, Trump will unlikely adopt measures that will threaten the United States-Mexico-Canada Agreement (USMCA), the trade agreement that his administration signed during his first term. That trade deal was one of the signature achievements of Trump's administration, so he will not want to pursue policies that will threaten the upcoming renewal of that agreement, Yaros said. While the tariffs will be limited, they will still be a drag on the economy by nudging inflation higher, reducing real consumer income, tempering consumer spending and encouraging the misallocation of resources, Yaros said. LIMITED TARIFFS REDUCE RETALIATION RISK FOR CHEMSOxford's scenario will limit the risk of countries imposing retaliatory tariffs on US exports. US chemical producers were vulnerable to such tariffs because they purposely added capacity for export over the years, particularly for polyethylene (PE) and polyvinyl chloride (PVC). The magnitude of these exports and the existence of a global glut in plastics and chemicals would make US chemical exports a likely target for retaliatory tariffs. On the import side, the US does have deficits in key commodity chemicals, such as benzene. Targeted tariffs could carve out exceptions for benzene was well as other chemicals in which the US has a trade deficit, such as methyl ethyl ketone (MEK) and melamine. Targeted tariffs will likely rule out duties on imports of oil. US refineries rely on imports of heavier grades of oil to optimize the operations of some of their units. US shale oil makes up nearly all of the growth in the nation's crude production, and that oil is made up of light grades. Meanwhile, tariffs could shield some chemicals from competition, such as epoxy resins. CONGRESS MAY LIMIT GROWTH IN DEFICITOxford pointed out that some moderate Republicans could restrain some of Trump's tax and spending proposals to limit growth in the government deficit, Yaros said. Other economists have expressed concerns that the US will issue larger amounts of government debt to fund the growing deficit. That would lead to a cascade effect that could ultimately increase rates for US mortgages, which would slow down the housing market and the plastics and chemicals connected to that market. Still, all of Oxford's scenarios forecast a rise in the government deficit. SLOWER RATE CUTS BY FEDOxford expects Trump's policies will be inflationary, which will prompt the Federal Reserve to slow down the pace of cuts on their benchmark federal funds rate. It expects the federal funds rate will settle at 3.125%, versus its forecast of 2.75% that was made in October. TRUMP WILL PRESERVE MOST RENEWABLE TAX CREDITSTrump will likely preserve most of the tax credits in the Inflation Reduction Act (IRA) because most of them benefitted states controlled by his party, the Republicans, Yaros said. These include tax credits on renewable fuels, renewable power, hydrogen and carbon capture. The exception will include incentives for electric vehicles (EV), which Trump had singled out during his campaign, Yaros said. OXFORD'S FORECASTThe following chart shows Oxford's new baseline forecast and compares it with a scenario under which the policies of the previous administration are maintained. The following chart shows Oxford's forecast that assumes Trump will fully adopt all of his campaign proposals. This is not the consultancy's baseline forecast because it does not expect such a full-blown Trump scenario will happen. Thumbnail shows the US Capitol. Image by  photo by Lucky-photographer.

11-Nov-2024