Trump tariffs are set to worsen the woes in the petchems industry
Industry officials and analysts warned that the new U.S. import duties will further reduce demand for global producers of petrochemicals and increase capacity cuts in a sector plagued with low margins.
The tariffs announced on Wednesday by President Donald Trump are expected to increase prices for electronic goods, appliances, and packaging. This will reduce consumption and decrease demand for petrochemicals, which are used to produce plastics and industrial chemical.
The Trump tariffs on imports of crude oil, refined products and gas were not applicable to imports of these items. However, the margins for refining key petrochemical feedstock, naphtha, in Asia are still high.
The recovery of margins in the export-based economy will be delayed by 6 months to 1 year if tariffs and other changes are not made. This was said by Pankaj Srivastava senior vice president, Rystad Energy.
He added that "these economies will be pressured to lower the utilisation rates in their plants and close some of the existing losses-making assets."
The margins for naphtha reached $257 per ton by March 2022, amid fears that the Black Sea route would be disrupted due to the Russia/Ukraine conflict.
Since then, margins are down as the global petrochemical market has cooled and new capacity, mainly in China, has been added. Many consultancies predict a recovery by 2027-2028 when Chinese capacity increases slow.
To weather the recession, U.S. producers have switched from naphtha and ethane to ethane and other cheaper feedstocks.
Insiders in the industry expect that Trump's tariffs will cause further pain to the industry, and some of its producers, including those in export-powerhouse Taiwan, South Korea, and Japan, may face additional pressures.
A global petrochemical company official declined to identify himself as he wasn't authorised to talk to media.
Import levies may also cause a costly reorganization of supply chains and trade flows, already disrupted by sanctions against Russian oil exports as well as Houthi attacks on the Red Sea.
China and the European Union both pledged countermeasures.
(source: Reuters)
