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US-China petchems trade flows may shift even after deal – Integra

Petrochemical trade flows between the US and China may not normalise completely even in the event of a trade deal as China shifts more towards feedstock and energy imports, the head of a major trading company said.

“Returning to original trade flows assumes that those volumes are still needed. But as time passes, supply/demand balances change. China may not need all the derivative volumes from the US as it becomes more self-sufficient downstream,” said Roger van Baal, executive director of Integra.

Van Baal spoke to ICIS on the sidelines of this year’s International Petrochemical Conference (IPC).

With major planned petrochemical and derivatives capacity increases in China, Malaysia, Indonesia, The Philippines, South Korea and the Middle East,along with the US, there could be a big squeeze on the way, he noted.

“China may not see the same volume of petchem imports after a trade deal but China will need more feedstocks. It could import more volumes of LPG [liquefied petroleum gas] and also LNG [liquefied natural gas], which is increasing in demand as they look for cleaner energy sources,” said Van Baal.

In addition to ethane imports for ethane crackers, players in China are looking at imported ethylene as well, he said.

“On paper, Asia, and China in particular, needs ethylene. Today it makes perfect sense to import with low US prices – the arb [arbitrage] is open but what will it look like when the exports terminals are ready?” said Van Baal.

For now, the US can only export ethylene in small quantities.

However, Enterprise Products Partners and Navigator Holdings are building an ethylene export terminal, set to be completed by the fourth quarter of 2019.

Yet when the US does have major ethylene export capacity, the regional ethylene spreads could narrow.

“Once the US could export in large quantities, you would expect that Asia prices could fall, and that US prices would creep up. For sure, it would affect southeast Asia prices,” said Van Baal.

For now, the US-China trade dispute is causing inefficiencies in the global petrochemical supply chain.

“When you have tariffs, you have a suboptimal flow of products. It adds costs that need to be passed along to consumers, or absorbed. But products will flow and will create swap opportunities,” he said.

For example, US petrochemicals could go to Europe or other parts of Asia rather than China.

And those companies that receive US product could then ship their own products to China without tariffs.

China’s import prices for certain petrochemicals and polymers it imported from the US had increased, but this has since normalised because of the abundance of such products worldwide, said the executive director.

Tariffs overall can have a domino effect as other countries could look to put up trade barriers as well, especially if their markets are flooded with products that would have gone elsewhere, he added.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.
Source: ICIS Interview article by Joseph Chang (https://www.icis.com/explore/resources/news/2019/03/24/10338538/afpm-19-us-china-petchems-trade-flows-may-shift-even-after-deal-integra/)

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