What are the implications of trade wars for polymer pricing and availability?
In his column this month, our resident polymer expert, Mike Boswell, untangles the truth behind the headlines and discusses the real implications global trade wars have for the polymer industry.
The ‘Trump Administration’, through its protectionist trade policies, is bringing a new dimension to the global plastics market. Whilst Donald Trump is a controversial figure, and not necessarily well-liked at home or abroad, he is widely credited for the recent revival of the US economy, although others may point to more tangible factors such as cheap energy resulting from shale gas. Nonetheless, President Trump continues to adopt a protectionist domestic agenda, applying tariffs to imported goods where otherwise US producers may struggle to compete.
In the case of plastics, the issue is not one of the US imposing additional tariffs on imports, but one of other countries applying tariffs on the imports of plastic raw materials in retaliation to the US imposing tariffs on their exports of other goods, including steel.
The selection of plastics for import tariffs comes as little surprise, given the recent resurgence in the US petrochemical industry based upon low-cost feedstocks derived from shale gas, along with the significant capacity build that now means that US producers are increasingly reliant on exports to fill capacity.
Whilst the imposition of duties makes imports less attractive, there are other factors to consider; most importantly is whether there is a fundamental demand, and, if so, will consumers be prepared to pay a price premium, or are there any options to dilute or avoid the duty? In a recent case, when, as a result of Turkey imposing an additional 25 per cent import duty on the import of PVC resin, it is rumoured that product was diverted via Europe (with which Turkey has a trade deal) in order to mitigate the duty premium and to keep Turkish plastics processors supplied. It is understood that Turkey has now withdrawn the additional duty on PVC imports from the US.
In a more recent case, China was initially rumoured to be considering applying additional duty on imports of LDPE from the US, only to ‘make a dummy pass’ and apply the tariff to LLDPE and HDPE instead. Whilst the initial reaction was for US producers to discount prices to other export markets to balance inventories, it soon became apparent that the market was rebalancing itself, with demand in South-East Asia booming as China sucked in more competitively priced material from this region to meet demand.
Furthermore, redistribution of supply is readily achievable due to the global nature of petrochemicals, and many US producers will simply reallocate supply to petrochemical plants outside of the US – which are not subject to duty – and other non-US producers will simply follow the arbitrage that will be a consequence of unbalanced supply.
In conclusion, it would appear that whilst selective import duties can be disruptive, and potentially harmful to the country that imposes them, in markets of global dimensions their true effect is rather limited.
Who is ‘Polymerman’?
Mike Boswell is Managing Director of UK materials distributor, Plastribution, as well as the Chairman of the British Plastic Federation’s Polymer Compounders and Distributors Group and its ‘BREXIT Committee’. ‘Polymerman’ is the title used for announcements made via his Twitter account. This column is compiled using data from PIE (Plastics Information Europe) www.plastribution.co.uk | www.pieweb.com