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A trade-war punch to chemical shipping

The escalating US-China trade war, if not settled in October as per the planned meeting between authorities of the two countries, will impact not only the Transpacific trade route, but also other major trade routes as China is the main demand driver.

The commencement of the US-China trade war in March 2018 led to a drop in the Chinese imports of liquid chemical products. As the conflict between the countries has continued to escalate in 2019, trade volumes in the top 10 chemical products from the US to China declined by 91% in the1H19 by 91%, compared with the same period of 2018. In fact, as the table below shows trade in some products has been reduced to zero.

Furthermore, the US-China trade war has had an impact on trade in vegetable oils as well. Since China implemented a 25% import tax on US soybean imports in July 2018, it has squeezed the supply of Chinese edible oil consumption and animal feed. As a result, China imported more palm oil (33%), soybean oil (48%), sunflower oil (57%) and rapeseed oil (34%) from other countries in 1H19, compared with 1H18.

Freight rates on the US Gulf to Northeast Asia dropped significantly in April 2018 and remained weak in 1H19, which squeezed the earnings of 25-55 kdwt chemical tankers on this route.

Meanwhile, China is moving rapidly towards self-sufficiency in many petrochemical products, including key products such as styrene and paraxylene. China’s imports of styrene are in decline and with more new production due on steam we expect the country’s imports of paraxylene to drop from 2H19.

Furthermore, the Chinese tariff on imports of methanol from the US has the potential to delay or cancel methanol projects in the US. Consequently, the US will have to look for alternative destinations to export its existing methanol capacity.

Lastly, it is clear that the trade dispute will dampen demand for downstream products as well, which will have a negative impact on China’s demand for imported base chemicals. As a result, seaborne trade volumes will be impacted not only on the Transpacific route, but also on other major trade routes, as China’s demand for chemicals is the driver for global seaborne trade.
Source: Drewry Maritime Research

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