The research and consulting firm said it “expects that U.S. polyolefins exports to China will be negatively impacted by 50 percent in 2019.” Common polyolefins include polyethylene and polypropylene.
“Tariffs will push export prices down in the U.S. and reduce margins for U.S. exporters shipping to China,” it predicts. “Although better margins can be found in Latin America, Europe and African countries, the demand is low and fragmented.”
U.S. chemical companies have ramped up production of plastics in recent years. The American Chemistry Council (ACC) says $202 billion has been invested since 2010 in 333 chemical industry projects linked to natural gas and gas liquids from shale formations.
“We previously expected the U.S. to be the incremental supplier for China’s increasing import demand,” said Ashish Chitalia, principal chemical analyst at Wood Mackenzie, but he said retaliatory tariffs will expedite U.S. producers’ search for more profitable markets.
In September, the ACC said both U.S. chemical and plastic product imports from China and U.S. plastic exports to China were being threatened by higher U.S. tariffs and retaliatory tariffs from the Chinese.
After the list of Chinese products subject to U.S. tariffs was expanded, a total of 1,517 chemicals and plastics imports from China, valued at $15.4 billion, have now been targeted by the United States.
Retaliatory tariffs by China have hit more than 1,000 U.S. chemicals and plastics exports, worth an estimated $10.8 billion.
Ed Brzytwa, ACC’s director of international trade, said the tariffs on U.S. producers are “erecting a huge barrier to China’s growing markets.”
He added nearly all of the investment by U.S. firms on chemical plants is “focused on serving the global market. American businesses may have to consider shifting their production overseas to avoid the tariffs.”
U.S. firms welcome the opportunity to make a case why they should be excluded from the latest round of tariffs, he added.
Wood Mackenzie predicted that China will continue to import plastic from the Middle East, South Korea, Thailand and Singapore for its supply.
Chitalia said “decreased supply for plastic finished goods in the U.S. will hit consumers in the pockets,” but that “the recently strengthened dollar will alleviate some of the pricing pressure.”
However, there could be a silver lining for U.S. manufacturers.
“On a longer term, the well-developed downstream plastics manufacturing industry can benefit. Tariffs on imported polyolefins finished goods from China, along with ample domestic resin production and lower-priced polymer, will support domestic producers. It will boost manufacturing, retail industries and create more jobs in the plastics manufacturing sector, encouraging more plastics to be ‘Made in America,’” said Chitalia.
He predicted, “Globally, numerous last-moment ship rerouting and swap agreements will impact logistical and financial arrangements, therefore squeezing the margins for global traders and suppliers. Additionally, several regions will start seeing unexpected volumes from the U.S. (resin) and China (finished goods), imparting downward pricing pressure for resin and plastic finished goods.”
Steve Gonzalez, a vice president of sales and marketing development at Plastic Express, a privately owned trucking, warehousing, packaging, transload and logistics company based in City of Industry, Calif., said that when the Chinese retaliatory tariffs went into effect, his company had customers “asking us to go back to the Port of Houston to pick up containers that we had already delivered and bring them back to the warehouse” because the shipments no longer made economic sense.
“So we literally had inventory coming back to us and having to restock it there in our warehouses. It is not a good thing, we want to be moving,” he said.
Since the tariffs went into effect, “what we’ve seen is a lot of our distributors trying to find domestic buyers to purchase the resin that was destined to be exported,” he said. “We’re seeing slow progress in that area.”
There are some alternative market available overseas for plastic resin exports, he said, such as Vietnam and various European countries. But he noted shippers moving cargo to Europe may want to rail cargo to East Coast ports rather than ship through Houston.