US Resins Have Caught the Attention of China

U.S. plastics pros often lament the fact that many outside the industry are unaware of the impacts that plastics have on everyday life.

Based on the events of the last two weeks, we can say that China — the most populous nation on earth — is indeed very much aware of the U.S. plastics market. American plastics execs now might be thinking it wasn't so bad being ignored.

On April 4, China responded to a second wave of proposed U.S. tariffs on Chinese products with its own list of 106 U.S. items that might be hit with tariffs in an economic counterattack. To the surprise of some plastics market watchers, more than 40 of those items had some connection to the plastics industry.

Chinese officials targeted plastic materials ranging from commodity resins PVC and polyethylene to engineering resins polycarbonate and nylon and even high-end specialty resins like polysulfone. The list reads like a plastics nerd's approved word list for a mean game of Scrabble.

Elsewhere on the plastics-related side, proposed U.S. tariffs — which came out a day before the Chinese resin backlash — cover a long list of industrial products, including molds, injection molding machines, extruders, blow molding machines and thermoforming equipment.

Based on dollar value in 2017, plastics ranked fourth on the list of markets targeted for Chinese tariffs, trailing only aircraft, soybeans and cars.

"It looks like China basically chose the polymer categories where the trade deficit value — not necessarily volume — was highest with the U.S." market analyst Paul Bjacek said this week in an email to Plastics News. "That means that high value polymers were not immune to the tariff possibilities.

"This way, engineering polymers can have high trade balance values relative to some commodity plastics," added Bjacek, who's with Accenture Research in Houston. "This may demonstrate that the tariffs are not targeted to disrupt shale gas chemical-related exports per se, and any polymers can be a target having a large value deficit with China."

Shale gas comes into play, since new access to that feedstock has led to a massive wave of U.S. PE resin expansion, mainly on the Gulf Coast. Much of that new material is expected to be exported, with China seen as a major destination.

In 2017, the U.S. exported just over 500 million pounds of PE to China, according to data firm International Trader Publications in Tarrytown, N.Y. That amount is less than the size of a single world-scale PE production line, but was expected to grow in 2018 and beyond.

PVC is a different story, however. Although the volume exported from the U.S. to China is similar to that of PE — around 700 million pounds — that amount represents close to 40 percent of all Chinese PVC imports, according to ITP.

China also has become an important market for U.S. PC resin makers, as domestic production of optical media products such as CDs and DVDs has declined. The U.S. now exports around 40 percent of all domestic PC production.

As a result, reduced U.S. exports could put some pressure on China to find alternate suppliers of PC resin and of nylon resins as well, according to Paul Blanchard, a market analyst with IHS Markit in Houston.

"China is reliant on imports to provide the required supply of both of these materials," Blanchard said in an email to Plastics News. "Assuming the required grades could be replaced easily — which may not be the case — on PC there's a bit of available capacity in Asia and more in western Europe."

On nylon 6/6, he added "there appears to be capacity in northeast Asia to cover." But If adiponitrile feedstock ends up on the Chinese tariff list, "that would be a complication for nylon 6/6."

The proposed Chinese tariffs will have minimal impact on U.S. and European resin suppliers and compounders that have established operations in China or in other Asian countries, according to Robert Eller, president of the Robert Eller Associates consulting firm in Akron, Ohio.

But Eller added that companies that have resin and elastomer operations in the U.S. could be hurt if they can't find markets in non-Chinese regions. "There might also be trading between companies as work-arounds between companies to avoid tariff issues," he said.

China is one of the U.S. chemical industry's most important trading partners, importing 11 percent, or $3.2 billion, of all U.S. plastic resins in 2017, according to the American Chemistry Council. ACC President Cal Dooley said in a statement that ACC officials "are particularly concerned" that 40 percent of the products to which China has assigned new tariffs are chemicals, including polyethylene, PVC, polycarbonates, acrylates, and others.

"Nearly $185 billion in new chemical factories, expansions and restarts of facilities around the country are predicated on current tariff schedules, and market shifts caused by tariff increases may convince investors to do business elsewhere," he added.

It remains to be seen if any or all of these tariffs will come to pass in either direction. But it's already clear that if China's economic officials want to hit the U.S. where it hurts, plastic resin is part of that fight plan.