China tariff on US methanol heats up trade war

HOUSTON (ICIS)–China imposed a retaliatory tariff on methanol imports from the US that made it an instant hot topic in the escalating trade war between the two countries.

One question floating around is how producers will pay  – or not pay – the proposed 25% tariff waiting for a shipload of US methanol when it docks in Nantong or some other Chinese port.

“That seems to be the most popular question this week,” a North American methanol producer said.

One answer is that buyers in China will pay more for methanol if the tariff goes through.

“The price of methanol in China just got more expensive,” a US methanol buyer said.

A  producer said the American methanol industry should be able to mostly avoid the China tariff by changing trade flows from the US to other countries such as Trinidad, New Zealand and the Middle East, where North American producers have plants.

Methanex CEO John Floren said as much in a July conference call, stating that “the beauty of our company is we have six production sites around the world”.

Those Methanex sites include New Zealand, Chile, Trinidad, the US, Canada and Egypt.

One complication in the trade war came from US President Donald Trump’s administration, which made it possible for China to issue a retaliatory tariff by imposing an American tariff on China’s exported methanol to the US.

The US tariff baffled some methanol watchers. US imports from China are hard to find in trade data, not listed among the top 10 methanol sources.

Another US producer said he has learned not to make snap judgments because of some of the strange logic that has surfaced during the trade war.

“I don’t worry about anything that comes out of Washington for at least a month,” the producer said.

What worries Gregory Dolan, CEO of the American industry trade group, the Methanol Institute, is that China’s tariff on US methanol will have a “perverse impact” in stopping US methanol shipments to China.

Dolan issued a statement earlier this week saying the US is now making a critical transition from being a net methanol importer to becoming a net methanol exporter, “and one of the principle potential markets for US methanol exports is China”.

And not just methanol exports. China’s latest round of tariffs range from 5-25% on 5,207 US products including hundreds of chemicals attracting the highest duty.

The US-China trade represents a huge ace-in-the-hole for the entire US petrochemical industry and not just methanol.

The American polymer market has intentionally overbuilt in recent years because of seemingly sure demand from China and Asian markets.

Many if not most new US petrochemical plants are targeted at overseas markets. Floren at Methanex said in July that a new unit the company is considering in Louisiana would be 100% devoted to exports.

For US methanol exports, China is the third most popular destination, accounting for about 5% of all shipments abroad in the first six months this year.

Yet China still receives less than one-tenth of the methanol that the US sends to South Korea, which received 79% of all exports in the first half, according to trade data.

Source: US International Trade Commission

Photo by VISUM/REX/Shutterstock

Focus article by Lane Kelley