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China announces implementation date for chemicals, plastics tariffs

HOUSTON, August 8, 2018 (PCW) -- China's Ministry of Commerce will target a list of 333 goods from the US with 25% tariffs, effective Aug 23, according to an announcement on the Ministry's website today.

The list, which includes many plastics and chemicals, amounts to $16 billion in US goods, and is a response to US tariff measures announced on Tuesday, which also set 25% tariffs on approximately $16 billion in Chinese goods.

An analysis of the Chinese tariffs assisted by Google Translate showed considerable differences in the types of plastic resins targeted on the new list versus the preliminary list published back in June.

HDPE, LLDPE, EVA, ethylene-propylene copolymers, PP homopolymers and copolymers were on the final list, but not the preliminary list.

Ethylene-alpha olefin copolymers and LDPE homopolymers were included on the preliminary list, but not the final list.

Cargo Scramble

The tariff move by China has set off a scramble to divert PE cargoes that were either on the water or awaiting shipment in US warehouses for China.

Europe, Latin America, Africa, the Mideast and Southeast Asia are among the likely alternative destinations for PE sellers. Mideast producers will pick up some of the slack in China, leaving a void in other markets for US product to fill.

One trader predicted it would take a month to reassign cargoes to other destinations, which could temporarily hobble producers' export sales.

US PE exports to China through 1H 2018 totaled 899 million pounds, and Chinese buyers are unlikely to entertain imports of any PE grades given the uncertainty about further tariffs.

The US PP market has become structurally tight, with exports playing a diminishing role, so Chinese import tariffs are unlikely to have much impact on PP in the near term.

On the NGL side, China has already been reducing its US LPG imports since March, US trade data show, as the trade war rhetoric escalated.

Chinese Imports Sinking

China was the fourth top importer of US propane in 2017, averaging 123,250 b/d, trade data show. For the year-to-date, US propane exports to China are averaging at 80,400 b/d. China was the top importer of US butane in 2017, averaging nearly 24,000 b/d. For the year-to-date, it is averaging 15,400 b/d of butane imports.

Shipping brokers said since the end of 1Q, exporters were already discussing swapping or diverting cargoes when the Chinese tariffs hit. In early April, market players were speculating the time frame of the 25% tariff implementation would be in late August/early September. Several shipping brokers said a handful of Chinese importers had already been heard cancelling or renegotiating their long-term contracts. In the short-term, this has led to several US July cargoes being hastily cancelled and the lifters incurring penalties under their take-or-pay contracts.

Market sources pointed to what they see as a test case, should further disputes occur as a result of the tariffs. In April, Oriental Energy was hit with nearly $524 million in damages to Mabanaft after the Hong Kong-based company tried to cancel a six-year propane export deal out of the US Gulf Coast. At this juncture, it is unclear if Oriental has indeed paid the damages as ordered.

In the longer term, sources said US LPG that had been earmarked for China desperately needs to find new homes, and most are looking at Japan and Korea to fill the expected gap. Most expect the Middle East to be a major beneficiary of these tariffs as the Chinese are likely to look to that region to meet their LPG supply needs. -- David Barry and Samantha Hartke

Note: A previous version of this article omitted LLDPE on the final list of products in the fourth paragraph.

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