[SINGAPORE] Chinese plastics factories that depend on a gas they mainly import from the US are contending with the prospect of shutdowns as the world’s two largest economies bunker down for a prolonged trade war.
The world’s dominant plastics manufacturer gets almost all its ethane, a petrochemical feedstock that is also a component of natural gas, from the US, according to analysts. Eye-watering tariffs on American goods mean plants that cannot process substitute raw materials will bleed money.
“The situation is dire for China’s ethane crackers as they have no alternative to US supply,” said Manish Sejwal, an analyst at Rystad Energy, using an industry term for such facilities. “Unless they are granted tariff exemptions, they may have to stop production or close shop.”
Most so-called crackers in China use naphtha as a feedstock, with processors that solely use ethane as raw material for petrochemicals making up is less than 10 per cent of the total at about four million tonnes, according to Rystad. China is by far the biggest buyer of American supply, according to the US Energy Department.
With 125 per cent tariffs in place, factories would have lost US$184 for every tonne of US ethane they processed in the week ending Apr 11, according to Rystad data. That compares with more than US$100 they would have made in profits if there were no tariffs.
The extra costs are another blow for China’s plastics sector, which is already dealing with a glut as the growth in production capacity exceeds demand. The tussle is also threatening other feedstocks, including natural gas liquids and propane – and has led to sharp drops in US prices.
Across China, domestic ethane production will not be able to plug the gap, with the nation producing around 120,000 tonnes in 2024, according to industry consultancy JLC International.
Furthermore, the ethane market “is marked by long-term contracts, with little to no opportunity to resell cargoes on the spot market”, Rystad said Apr 10, making it tough for the Chinese to obtain alternative supplies from non-US sources. BLOOMBERG
