INSIGHT: China’s new US import tariffs to barely dent polyolefins but re-export concerns

SINGAPORE (ICIS)–China has imposed an additional 25% tariff on selected US imports worth of $16bn from 23 August, with high density polyethylene (HDPE), linear low density PE (LLDPE) and polypropylene (PP) products affected.

The latest round of tariff hikes, announced by China’s Ministry of Commerce (MOFCOM) on 8 August, reflect the continuing escalation of the tit-for-tat trade war between the US and China.

To hedge against the risks incurred from the extra tariffs, most traders have decided to sell the affected products, including LLDPE, HDPE film and HDPE blow moulding at lower prices to downstream export-oriented processors and re-export HDPE injection to other regions.

On 23 August, import offers were at $1,100-1,130/tonne CFR CMP (cost and freight, China main port) for LLDPE, at $1,290-1,330/tonne CFR CMP for HDPE film, at $1,270-1,310/tonne CFR CMP for HDPE blow moulding and at $1,190-1,200/tonne CFR CMP for HDPE injection, market players said.

Several of them added that the US HDPE blow moulding and film imports, subject to the additional 25% tariffs, were sold at $1,200/tonne to Chinese downstream export-oriented processors. These processors may purchase feedstock polyolefin in US dollars and directly export the finished products, also in US dollars, avoiding the extra tariffs imposed by China.

But for HDPE injection, there are not so many export-oriented processors in China, and hence, international traders were heard intending to buy back the US products at $1,000-1,050/tonne and divert them to southeast Asia in order to reduce losses.

SUPPLY
The latest tariff increases may affect around 80,000 tonnes of US PE imports to China, including 50,000-60,000 tonnes of HDPE and 10,000 tonnes of LLPDE.

Source：China Customs and USITC

ICIS forecasted before the US-China trade war, that PE exports from North America to northeast Asia would be greater than 2m tonnes by 2020 with new production capacities coming on stream in North America between 2016 and 2020.

In 2017, the US exported 580,000 tonnes of PE to China, according to ICIS supply and demand data. The volume is relatively small, when compared to the 2.5m-tonne monthly PE consumption in China on average, and is thus having limited impact on domestic PE supply.

Nevertheless, market players are more concerned that the tariff hikes will hinder China’s exports of plastics products to their major destination, the US, which will consequently drag down domestic feedstock polyolefin prices.

China polyethylene apparent demand in 2018

Jan-July 2018
unit: 10kt	Domestic	Import	Total
LDPE	160.75	169.5	330.25
LLDPE	405.29	242.6	647.89
HDPE	387.97	393.57	781.54
PE total	954.01	805.67	1759.68

DEMAND
China’s exports of selected polyolefin-made plastics products, subject to the extra 25% tariffs levied by the US as of 23 August, are mainly listed in the HS code heading No 39 (HS code-39).

The affected volume, calculated based on the data from the United States International Trade Commission (USTIC) in 2017 is around 128,000 tonnes. Such a volume is not expected to have a great impact on the market in the short term.

The polyolefin-made plastics product list to which the extra 25% tariffs applied on 23 August

HS code	product name	volume to US 2017 （unit-tonne）	Value （unit 1000 dollars)
391,610	MONOFILAMENT WITH A CROSS-SECTIONAL DIMENSION OVER 1 MM, RODS, STICKS AND PROFILE SHAPES OF POLYMERS OF ETHYLENE, NOT MORE THAN SURFACE-WORKED	5507	8244
391,721	TUBES, PIPES AND HOSES, RIGID, OF POLYMERS OF ETHYLENE	4285	15412
391,722	TUBES, PIPES AND HOSES, RIGID, OF POLYMERS OF PROPYLENE	1224	5589
3,917,31	FLEXIBLE TUBES, PIPES AND HOSES, HAVING A MINIMUM BURST PRESSURE OF 27.6 MPA, OF PLASTICS	2756	21239
3,917,40	HTS – 391740: FITTINGS FOR TUBES, PIPES AND HOSES, OF PLASTICS	15021	96553
3,920,10	PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NOT SELF-ADHESIVE, NON-CELLULAR, NOT REINFORCED OR LAMINATED ETC., OF POLYMERS OF ETHYLENE	57342	150443
3,920,20	PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NOT SELF-ADHESIVE, NON-CELLULAR, NOT REINFORCED OR LAMINATED ETC., OF POLYMERS OF PROPYLENE	15878	61177
3,921,90	PLATES, SHEETS, FILM, FOIL AND STRIP OF PLASTICS, NESOI, NON-CELLULAR PLASTICS NESOI	25968	221097
total		127981	579754

Source: USITC

However, the escalating trade war and the possibility of further tariff additions will dampen the US buyers’ interest in Chinese plastics products imports, market players said.

Source: National Bureau of Statistics

China’s plastics products output totalled 75.15m tonnes in 2017, of which, 15% or around 11.68m tonnes were exported. The proportion of exports in total domestic output has been declining in recent years, due to expanding domestic demand. However, if the US decides to impose additional tariffs on all the remaining plastics products imports from China listed under the HS code-39, China’s shipments to the US may halt. Market players added that there would be a 2.6m tonne drop in demand, with polyolefin made plastic products accounting for about 67% of the total demand.

Source：China customs and USITC

China’s export value of plastics products under the HS code-39 reached around $71.3bn in 2017, of which, 22.9% or $16.3bn was attributed to the US, according to market sources.

Data from the USITC shows China as the largest plastics products exporter to the US, contributing 35% of the $47bn US import value of plastics products under the HTS code 39. Hence, the lack of Chinese supply would also raise US plastics products prices in the near term.

Polyolefin-made plastics products not yet affected by the additional tariffs under the HS code-39

HS code	product name	Unit 1000 dollars
392220	LAVATORY SEATS AND COVERS, OF PLASTICS	65390
392321	SACKS AND BAGS (INCLUDING CONES), OF POLYMERS OF ETHYLENE	818705
392329	SACKS AND BAGS (INCLUDING CONES), OF PLASTICS NESOI	248083
392330	CARBOYS, BOTTLES, FLASKS AND SIMILAR ARTICLES, OF PLASTICS	342542
392390	ARTICLES FOR THE CONVEYANCE OR PACKING OF GOODS, NESOI, OF PLASTICS	521117
392410	TABLEWARE AND KITCHENWARE OF PLASTICS	2057733
392490	HOUSEHOLD ARTICLES NESOI (OTHER THAN TABLEWARE AND KITCHENWARE) AND TOILET ARTICLES, OF PLASTICS	1721378
392520	DOORS, WINDOWS AND THEIR FRAMES AND THRESHOLDS FOR DOORS, OF PLASTICS	71462
392530	SHUTTERS, BLINDS (INCLUDING VENETIAN BLINDS) AND SIMILAR BUILDERS’ ARTICLES AND PARTS THEREOF, OF PLASTICS	380116
392620	ARTICLES OF APPAREL AND CLOTHING ACCESSORIES (INCLUDING GLOVES, MITTENS, AND MITTS), NESOI, OF PLASTICS	1082426
392630	FITTINGS FOR FURNITURE, COACHWORK OR THE LIKE, OF PLASTICS	168739
392690	ARTICLES OF PLASTICS, NESOI	2696730
total		10174421
source: USITC and ICIS

By Angie Li