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The petrochemical industry is concerned that China and other countries could impose retaliatory tariffs on U.S. exports.

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U.S. President Donald Trump’s announcement on March 22nd that the nation may pursue tariffs on at least $50 billion on Chinese goods pushed concerns of a trade war higher and sent chemical company stocks tumbling. Hours later, China sent a retaliation on at least 128 U.S. goods.

President Trump directed the U.S. trade representative to level tariffs on about $50 billion worth of Chinese imports following a seven-month investigation into the intellectual property theft.

In addition to the tariffs, the U.S. also plans to impose new investment restrictions, take action against China at the World Trade Organization, and the Treasury Department also will propose additional measures.

The Dow Jones Industrial Average closed at 23,957.89, down 724.42 points or nearly 3% by the end of the working day on March 22 following the news.

Major chemical companies stock that fell more than 4% on March 22nd included Platform Speciality Products, Ecopetrol, Trinseo, Tronox, Huntsman, Kronox, LyondellBasell, and AdvanSix.

The petrochemical industry has been concerned that China and other countries could impose retaliatory tariffs on U.S. exports.

Chemical exports are expected to increase significantly as companies start up new petrochemical plants in the U.S.

On March 23, China did indeed send a retaliation. China's commerce ministry proposed a list of 128 U.S. products as potential retaliation targets, according to a statement.

The U.S. goods, which had an import value of $3 billion in 2017, include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng. Those products could see a 15% duty, while a 25% tariff could be imposed on U.S. pork and recycled aluminum goods, according to the statement.

Beijing will take measures against the 128 U.S. goods in two stages if it cannot reach an agreement with Washington, the ministry said, adding that it could take legal action under World Trade Organization rules.

Asian stock markets also took a dive on the news.

The Chinese import tariffs announced by Trump followed aluminum and steel tariffs announced on March 1.

The Trump administration on March 22nd said it would add more allies to the list of countries that will not face tariffs for shipping steel and aluminum into the U.S.

Metals from Canada, Mexico, the European Union, Argentina, Australia, Brazil and South Korea will not be affected when the tariffs take effect.
 

U.S. vs Alberta for Methanex brownfield

Methanex is looking at either Geismar, Louisiana, U.S. or Medicine Hat, Alberta, Canada as a location for it’s next brownfield $1.0 to $1.6 billion methanol expansion. Recent tax breaks are a key factor in its decision.

The Ascension Parish School Board approved an industrial property tax exemption for Methanex on March 20, clearing a roadblock for the company's decision whether to build a third methanol plant at its Geismar site.

The Ascension Parish government and Ascension Parish Sheriff previously gave their approval for the tax break.

The Louisiana tax breaks will be based on construction costs.

If the construction cost is $1.3 billion or higher, Methanex would receive 100% exemption from property taxes for five years.

Construction costs at lower amounts, of $1 billion to $1.3 billion, would earn a 95% exemption for five years, while construction costs of less than $1 billion would earn a 90% exemption for five years.

Methanex has also been eyeing another one of its sites, in Mountain Hat, Alberta, Canada, as a possible location for its new methanol plant.

The Alberta government is planning to spend $1 billion over the next four years on the petrochemical industry.

The cash will come from two streams — the second round of the petrochemicals diversification program, and a new feedstock infrastructure program.

Inter Pipeline was one of the companies to benefit from Alberta’s first round of the petrochemicals diversification program.

The price of natural gas feedstock and export options will also play a key role in the decision making process for Methanex.

A final investment decision is expected in early 2019, with construction beginning in mid-2019 and plant start-up slated for 2023, Methanex said.

Chemical upcycle could continue through 2022

The U.S. chemical industry upcycle, which began in 2014, is likely to continue for several more years, Dave Witte, senior vice president of energy & chemicals at IHS Markit said.

Witte was speaking at IHS Markit's World Petrochemical Conference 2018 in Houston, Texas.

Capacity additions have not kept pace with global demand, and as a result the market will continue to tighten, driving up operating rates and margins, Witte explained.

Limited capacity additions will cause operating rates across the entire chemical sector to incline to 84% by 2019 and stay there, Witte said.

“This is 5% higher than we had in 2014, and the highest level since 2006-2007.”

IHS Markit expects the market for several products to be susceptible to outages or demand surges.

"We learned from Hurricane Harvey how, post-shale, the world supply chain is now so interconnected,” Witte said.

IHS Markit expects earnings to grow in virtually every sector during the next two years, and to remain robust for syngas, methanol, and chlor-alkali. Margins for aromatics and ammonia will narrow around 2020 on the addition of new capacity. Olefins margins will moderate at about the same time before accelerating again in 2021 or so.