The Asian petrochemical market may soon feel the impact on trade flows after China offered to grant tariff waivers for US materials starting from March 2, market sources said. The effect will be felt when the influx of US cargoes displace supplies from Asian and Middle Eastern producers.
Asian petrochemical prices have yet shown significant movement after the announcement as traders adopted a wait-and-see approach. Market sources expected prices could be impacted when more US supplies come to China in the coming months. The waiver can potentially put Asian ethylene and derivatives prices under pressure. China’s demand has been dampened by the coronavirus recently. Increasing inflow from the US will pose a challenge to Asian and Middle Eastern suppliers.
Asian ethylene prices were observed at $705/ton CFR Northeast Asia on Wednesday, steady from Monday, while MEG inched down $2/ton to $528/mt CFR China during the same period. Meanwhile, LLDPE prices fell by $10/ton to $810/ton CFR Far East Asia due to weak demand amid the epidemic.
US ethylene made up only 1,340 tons or 0.53% of China’s total ethylene imports of 2.5 million tons in 2019, customs data showed. It remains hard to estimate how much the imports would increase after the tariff exemptions. Buyers will also consider shipping costs of importing US cargoes. Besides, Middle Eastern and Asian cargoes offer flexibility on arrival dates. However, US ethylene will still be worth considering if the prices are lower, a Chinese ethylene buyer said.
Chinese traders also expected more inflow of US MEG if prices are lower. US producers produce gas-based MEG, which is typically cheaper than ethylene- and naphtha-based MEG originated in Asia. The US is expecting an addition of nearly 2.5 million tons of MEG capacity from 2019 to 2020.
In the downstream sector, the impact is expected to be limited. China imposed an anti-dumping duty of 13.7%-55.7% on US styrene. This means the tariff waivers are meaningless, according to a Chinese SM buyer. Besides, China will have nearly 1.9 million tons of new domestic styrene capacity by 2020. The impact on paraxylene will likely be limited as well due to new capacity in China and elsewhere in Asia.
