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Asia & Middle East Polyolefins: Repercussions of the US-China trade war
9 April 2019
Felita Widjaja, Leanne Tan and Veena Pathare
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Agenda
US-China trade war and the impact on polyolefin prices
Implications on demand and supply balance
Seeking a new balance: Evolving trade flows and changing macroeconomic policies
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US-China trade war and the impact on polyolefin prices
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A look back on escalating US-China trade tensions
$34bn
$34bn
25% tariffs
$16bn
$16bn
6 July 2018 23 August
$200bn
$60bn
10% tariffs, 25% by January
24 September
$267bn Pending
Includes $8.8bn worth of chemicals and polymers
5%, 10% tariffs
24 February 2019
Trump extends 1
March tariff deadline
To be continued..
2 December
90-day truceuntil 1 March
90-day truce China temporarily lower
tariffs on US autos
14 December
3rd round of tariffs
2nd round of tariffs
1st round of tariffs
October - November January-February
Trade talks resume Trade talks resume
$110bn
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Impact of US-China trade tensions on PE
$110bn
Product Initial Tariffs Final tariffs after 25% hike implemented on 28 Aug 2018
Total China imports in 2017 (million tonnes)
Estimated share of US materialin China imports in 2017
LDPE 6.5% Not included; remains at 6.5% 2.4 7%
HDPE 6.5% 31.5% 6.4 5%
LLDPE 6.5% 31.5% 3.3 5%
PP 6.5% 31.5% 4.7 3%
Total US Tariffs: $250bn
Total Chinese Tariffs: $110bn
Source: ICIS supply and demand database
2,025,6302,224,395
791,675
1,852,458
12%11%
31%
6%
0%
5%
10%
15%
20%
25%
30%
35%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2017 US Export Volumes (tonnes)
Total volume of global exports % of exports to China
Source: ICIS Supply and demand database
HDPE LLDPE LDPE PP
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Asia LLDPE prices decline on weaker sentiment after tariff announcement;stabilizes in early 2019
2%
-2%
2%
-2%
-3%
-4%
2%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia LLDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Q1 off to a bullish start, buoyed by pre-Lunar New Year buying
US tariffs on Chinese exports announced in mid-June
With the tariffs imposed, US cargoes are directed to other regions outside of China. Chinese prices find some stability in Q3, while SE Asia prices come under continued pressure.
Sharp depreciation of Chinese yuan weighs heavily on import market
Prices stabilise as yuan strengthens and trade talks begin
Source: ICIS
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Asia HDPE prices largely supported, but fell in Q4 amid longer supply
2%
-2%
2%
-3%
-2%
-5%
2%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
900
1,000
1,100
1,200
1,300
1,400
1,500
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia HDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Q1 largely supported by tight supply amid strong PE pipe market
US tariffs on Chinese exports announced in mid-June
Prices rebound amid plant maintenance season in China
Fears of US-China trade war and local currencies depreciation add to bearish sentiment
Prices plunged in late 2018 on increased supply and availability of competitively priced cargoes
Source: ICIS
Prices remain under pressure amid weak downstream demand
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Similar trend with Asia PP; lengthened availability of Indian exports in Q3 weighs heavily on spot prices
3%
-2%
-1%
-10%
4%
1%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia PP Flat yarn price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Chinese import prices plummet in Q3 due to a sudden spike in exports from India, as suppliers there seek to clear on-hand cargoes.
Start up of new PP plant in Vietnam lengthens regional supply Build-up of domestic
inventory levels in China after the Lunar New Year holiday
US tariffs on Chinese exports announced
Prices supported by tight supply – unexpected turnarounds in Q1 2019
Source: ICIS
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GCC PE price spread over China narrows in 2019, PP spread stays strong
-400
-300
-200
-100
0
100
200
300
400
500
5 Jan2018
5 Mar2018
5 May2018
5 Jul 2018 5 Sep2018
5 Nov2018
5 Jan2019
5 Mar2019
GCC PE price spread over China
HDPE film spread
LLDPE film spread
LDPE film spread
Source: ICIS
Absence of Qatar-origin cargoes in the region supports netbacks for LDPE
-100
-50
0
50
100
150
200
250
05-Jan-2018 06-Apr-2018 06-Jul-2018 05-Oct-2018 11-Jan-2019
GCC PP spread over China
Source: ICIS
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East Med: Jordan makes slow recovery in demand
Saudi Arabia, 72%
China, 6%
UAE, 5%
Qatar, 5%
Kuwait, 4%
India, 2%
Singapore, 2%
United States, 1%
Others, 3%
Source: ICIS Supply and Demand database
LLDPE imports to Jordan (2018) – Based on origin
Source: ICIS Supply and Demand database
LLDPE demand nets some gains, PP stagnant
Higher taxes on consumer goods, lower tax threshold hamper demand
Lower operating rates at HDPE blow moulding, PP film processors
Imports from India, US emerge 2018 onwards
0
20000
40000
60000
80000
100000
120000
2016 2017 2018
HDPE LLDPE PP
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Other Asian markets: India remains unattractive for Middle East PE sellers
900
950
1000
1050
1100
1150
1200
02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019
LLDPE netback Mideast to China=CFR China-freight
LLDPE netback Mideast to India = CFR India-freight
LLDPE netback Mideast to SEA=CFR SEA(dut)-freight
LLDPE netback Mideast to Turkey=CFR Turkey-freightSource: ICIS
India poised to see 11% growth in LLDPE demand, HDPE to remain flat* in FY 2018-2019
India remains an unattractive market for LLDPE, HDPE imports
Ample domestic availability
Import prices influenced by domestic product
Indian PP import prices capped by domestic price parity
*According to market estimates
Netbacks to FOB Middle East - LLDPE film
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019
HDPE netback Mideast to China = CFR China-freight
HDPE netback Mideast to India=CFR India-freight
HDPE netback Mideast to SEA=CFR SEA (dut)-freight
HDPE netback Mideast to Turkey =CFR Turkey-freight
Netbacks to FOB Middle East - HDPE film
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Implications on demand and supply balance in Asia
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China reduces PE imports from the US; Iranian and Indian volumes plug the gaps
Source: ICIS Supply and demand database
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
China LLDPE imports2016-2018 (tonnes)
SINGAPORE SAUDI ARABIA THAILANDUNITED ARAB EMIRATES SOUTH KOREA UNITED STATESIRAN QATAR INDIAOTHERS
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
China HDPE imports2016-2018 (tonnes)
SAUDI ARABIA IRAN
UNITED ARAB EMIRATES SOUTH KOREA
THAILAND TAIWAN, PROVINCE OF CHINA
UNITED STATES KUWAIT
QATAR OTHERS
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US PE exports diverted away from China to SE Asia
69,749
28,424
60,496147,989
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jul 2018 * Oct 2018 *
US polyethylene exports –Jul vs Oct 2018 (%)
NORTH AMERICA SOUTH & CENTRAL AMERICA EUROPE
EASTERN EUROPE AFRICA MIDDLE EAST
CHINA REST OF ASIA
(41,325)
38,035
16,160
14,757
10,299
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Changes in US PE exports to Asia* –Jul vs Oct 2018
CHINA VIETNAM MALAYSIA SINGAPORE INDONESIA
Source: ICIS Supply and demand database(*) Volumes in tonnes
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Downstream conditions: Profound impact on China’s finished plastics exports to US
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The Chinese government’s response so far – Is it having an impact?
Increase in export tax refund rates for plastics and plastic products to 16% took effect on 1 November 2018
Increase competitiveness of Chinese polyolefin exports
Reduction in value-added tax (VAT) for the manufacturing sector effective 1 April
Product Export Rebate
LDPE 16->13%
HDPE 16->13%
LLDPE 16->13%
Product Export Rebate
PP homopolymers 16->13%
PP copolymers 9%
Other PP grades 13%
Import price Import cost* on 16% VAT
Import cost* on 13% VAT
Selling price in yuan-based import market
Margin* on 16% VAT
Margin* on 13% VAT
$1,000 CNY8,489 CNY8,273 CNY8,600 CNY111 CNY327* The yuan-denominated import cost takes into account an exchange rate of CNY6.75 to $1; a 6.5% import duty and assumed port fees of CNY150/tonne; while margin is computed as selling price less import cost.
Source: China Finance Department
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US historically not a key PP exporter to China; Chinese export volumes expected to grow on rising self-sufficiency
0
20000
40000
60000
80000
100000
120000
140000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
China PP exports2016-2018 (tonnes)
VIETNAM HONG KONG THAILANDJAPAN PERU INDONESIAINDIA MALAYSIA TAIWAN, PROVINCE OF CHINAUNITED STATES OTHERS
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
Chinese PP imports2016-2018 (tonnes)
SOUTH KOREA SINGAPORE SAUDI ARABIATAIWAN, PROVINCE OF CHINA UNITED ARAB EMIRATES THAILAND
JAPAN INDIA VIETNAM
MALAYSIA UNITED STATES OTHERS Source: ICIS Supply and demand database
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Who will supply China with PP?
Source: ICIS Supply and demand database
0
50,000
100,000
150,000
200,000
250,000
300,000
South Korea PP exports by country 2016-2019 YTD (tonnes)
CHINA VIETNAM TURKEY HONG KONG JAPAN UNITED STATES OTHERS
China inches toward PP self-sufficiency
Focus on homopolymerbefore pushing toward copolymer self-sufficiency
South Korea to remain a key exporter to China
Another 2 million tonnes/year of South Korean PP capacity expected to come on stream by 2021
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Evolving trade flows and changing macroeconomic policies
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North America PE expansions: 2.84m tonnes of capacity expected in 2019
Company Capacity (kt/year) Grade, breakdown Location Start-Up
Dow Chemical 400 ELITE PE Freeport, Texas Q3 2017
Dow Chemical 350 LDPE Plaquemine, Louisiana Q4 2017
Chevron Phillips Chemical 1,000 Bimodal HDPE (500), mLLDPE (500) Old Ocean, Texas Q3 2017
ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas Q4 2017
INEOS/Sasol 470 HDPE La Porte, Texas Q4 2017
Dow Chemical 125 Bimodal HDPE St Charles, Louisiana Q4 2018
Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana Q1 2019 / Q3 2019
LyondellBasell 500 HDPE La Porte, Texas Q3 2019
Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas H2 2019
ExxonMobil Chemical 650 LLDPE Beaumont, Texas 2019
Total/Borealis/NOVA 625 Borstar PE Bayport, Texas 2021
Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania Early 2020s
PTT Global Chemicals 700 HDPE (2x 350) Belmont County, Ohio NA
NOVA Chemicals 430 LLDPE Sarnia, Canada 2022
SABIC/ExxonMobil* NA PE unspec (2 units) Corpus Christi, Texas H1 2022
Dow Chemical 600 PE (unspec) US Gulf Coast 2021-2023
Dow Chemical 350 PE (unspec) US, global debottlenecks 2021-2023
Through 2019 = 6.5m tonnes/year (+39% US capacity)Through 2022 = 12.1m tonnes/year (+74% US capacity)
* Assuming 1,300kt PE for SABIC/ExxonMobil
Source：ICIS
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PE estimated global trade flow 2020 （’000 tonnes）
North East Asia
Asia Pacific
Former USSR
Middle East
Africa
South & Central America
EuropeNorth America
+2137 +917
+2610 +2670
From North America
From North America
+993 +1061
+3612+3680
+7239 +8399
+1971
+3582
+1205 +1693+2137 +917
+1745 +1745
+1061+993
To North East Asia
To Asia and Pacific
Source: ICIS
Sadara（Dow）HDPE/LLDPE: 750,000 Q4 2016LDPE: 350,000 2017
Chevron Phillips HDPE: 500,000 mid 2017mLLDPE: 500,000 mid 2017
ExxonMobilLLDPE: 650,000 end 2017mLLDPE: 650,000 end 2017PE: 650,000 2019
Original estimated trade flow
INEOS/SasolHDPE: 470,000 Q4 2017
Lyondell BasellHDPE: 500,000 mid 2019
SasolLLDPE: 470,000 H2 2018LDPE: 420,000 early 2019
Saudi Polymer（CP Chem）HDPE: 550,000 2012HDPE: 550,000 2012
Dow PE: 400,000 Q3 2017LDPE: 350,000 Q4 2017
SEPC（Basell）HDPE: 400,000 LDPE: 400,000Fomosa plastics
HDPE: 400,000 H2 2018LDPE: 400,000 H2 2018
Kemya（Sabic & Exxon）LDPE: 220,000 2012LLDPE: 850,000 2012
DowMLLDPE: 650,000
ExxonMobilMLLDPE: 1,900,000
+3094
+1367
Updated estimated trade flow
Evolving PE trade flows as US producers redirect cargoes
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PP expansions more concentrated in Asia as compared to PE
Producer Location PP (‘000 tonnes/year) PE (‘000 tonnes/year) Start-up (estimated)
PTTGC Thailand 400 LLDPE End 2017
Nghi Son Refinery and Petrochemical
Vietnam 400 July 2018
Long Son Petrochemical Vietnam 400 500 LLDPE, 450 HDPE 2023
JG Summit Philippines 110 250 HDPE 2020
Lotte Chemical Titan Malaysia 200 July 2018
Petronas RAPID Malaysia 900 400 HDPE, 350 LLDPE H1 2019
Chandra Asri Indonesia 80 (debottlenecking) 400 LLDPE/HDPE End 2019/2020
Hyosung Vietnam 400 2020
Lotte South Korea 400 250 LDPE, 500 HDPE 2021
Hanwha Total South Korea 300 400 HDPE PE 2021 PP 2022
Polymirae and SK South Korea 400 2021
LG Chemical South Korea 800 HDPE 2021
GS South Korea 500 HDPE 2021
Source：ICIS
www.icis.com 23Source: ICIS
Middle East to remain major PP global supplier; northeast Asia emerges as net exporter
PP estimated global trade flow 2020 （’000 tonnes）
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Slower-than-expected polymers expansions in China
Source：ICIS
ProducerCapacity ('000 tonnes/year)
Start upLLDPE HDPE PP
Jiutai Energy 250 350 H1 2019
Zhong’an Lianhe Coal Chemical 350 350 H2 2019
Qinghai Damei 300 400 H2 2019
Zhejiang Petrochemical 300 HD/LLD 450 900PP H2 2019
PE 2020
Baofeng Energy 300 300 H2 2019
Juzhengyuan 600 H2 2019
Hengli PC 400 880 H2 2019-2020
Daqing Lianyi Chemical 400 500 2020
Yantai Wanhua 450 400 300 2020
Liaoning Bora Petrochemical 450 HD/LLD 350 600 2021
Fujian Gulei Petrochemical 350 2021
SINOPEC Zhongke REF. & PC. 350 550 2021
Sinopec SK Wuhan Petrochemical 300 300 2021
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Outlook for the polyolefins market (rest of 2019)
• Additional capacities in China and SE Asia expected to come on stream in the second half of 2019
• More US PE could flow to SE Asia, should US-China trade war persist • Steady increase in China’s PP export volumes to SE Asia
• Upstream crude and monomer cost prices; their effects on regional operating rates
• Volatile exchange rates against a backdrop of an uncertain global macroeconomic outlook
Demand
Supply
Other factors
• Demand seasonally peaks in April; buying to slow as Eid holiday approaches
• Some uptick expected in Q3, ahead of the year-end close• Indian imports dictated by domestic supplier prices
• Pro-consumption government policies, reduction in VAT and increased export tax rebate could support Chinese demand
• 5-6% growth expected for PE; 6-7% for PP
Rest of Asia &Mideast
China
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Contact us
Middle East /
South Asia
Veena Pathare
Asia Pacific
Felita Widjaja (PE)
Hazel Goh (PE Pipe)
Leanne Tan (PP)
Turkey, Africa
Ben Lake
Europe
Linda Naylor
US
Zachary Moore
China
Angie Li (PE)
Dora Xue (PP)
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