China shuns US petchems as trade war escalates; eyes Asian supply

SINGAPORE (ICIS)–China’s petrochemical importers have been actively looking for new sources of supply within Asia to minimize their reliance on US cargoes amid the escalation of the US-China trade war.

The second wave of the US’ 25% tariffs on additional Chinese imports worth $16bn took effect on 23 August, raising the value of affected goods in the trade war between the world’s two biggest economies to $50bn.

This time, chemicals and polymers are included in the list.

China is a major importer of petrochemicals in Asia, and counts the US as a key source of supply for selected products, which will now be subject to a hefty increase in tariff rate.

For ethylene dichloride (EDC), China accounted for 28% of the US total shipments in 2017, according to official data.

A Chinese downstream producer, which imports US-origin EDC, is considering lowering operating rates at its plant or procuring feedstock supply from northeast Asia.

For acrylonitrile (ACN), spot imports of US cargoes is expected to start to dwindle as the new tariff rate on the product will be more than nine times the previous tariff rate of 3%.

“We won’t consider buying import ACN from the US in the future as we have to pay additional 25%. This is too high,” a regional trader said.

Contract buyers had been trying to swap their US-origin ACN cargoes with northeast Asian material before 23 August.

For ethylene vinyl acetate (EVA), Chinese demand for Asian cargoes has improved as the tariff rate for US-origin material will effectively increase to 31.5% from 6.5%.

US EVA accounted for an estimated 6% of China’s total EVA import volumes of 1.1m tonnes in 2017.

Chinese petrochemicals buyers that signed supply contracts with US producers months ago are facing losses with the implementation of the second wave of tariffs.

The high tariffs on US products will force them to find ways to re-export the US cargoes to other regions, for which brokers typically ask high commissions.

The new round of tariffs on Chinese imports is being implemented less than two months after the first salvo in the trade war was fired on 6 July, and just as trade negotiations between the two countries were revived in Washington on 22-23 August.

China has adopted a tit-for-tat strategy in its trade spat with the US.

In a statement on Thursday, China’s Ministry of Commerce (MOC) reiterated its stance that the US is violating World Trade Organisation (WTO) rules in imposing the tariffs.

“China firmly opposes this and has to continue to make the necessary counterattack,” it said.

The scheduled meeting in late August between US treasury undersecretary for international affairs David Malpass and Chinese vice commerce minister Wang Shouwen initially raised hopes of a resolution to the ongoing trade spat between the world’s two biggest economies.

But US President Donald Trump had undermined any possible progress from the mid-level meeting before it began, saying he did not “anticipate much” from the discussions, as quoted by newswire agency Reuters.

In June, US commerce secretary Wilbur Ross had a meeting with Chinese economic adviser Liu He but no agreements were forged.

The trade war saga will continue, with the US is also looking at imposing 10% tariffs on $200bn more Chinese goods, as the Trump administration is keen on bringing down the US’ trade deficit with its Asian counterpart which was at more than $300bn last year.

In 2017, China’s total imports from the US stood at $130bn, while US’ imports of Chinese goods and services totaled around $500bn.

Focus article by Pearl Bantillo

Additional reporting by Judith Wang, Helen Lee, Jonathan Chou, Fanny Zhang and Yvonne Shi

Picture: China port (REX/Shutterstock)