US-China trade war would benefit Malaysian petrochemicals: Maybank KE

JULY 16, 2018 - 10:02 AM

Malaysian petrochemicals would benefit from a prolonged trade war between the United States and China, Maybank Kim Eng analyst Mohshin Aziz said in a report on July 11.

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Trade spats, price spikes?

China’s first round of tariffs on imports from the US included 25 per cent duties on low-density polyethylene, polyvinyl chloride, asphalt shale, shale oil and tar sand.

Another round of tariffs - which has not yet kicked in - would hit ethane, propane, butane, propane, butane and naphtha.

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“We think the US petrochemical industry is one of the most vulnerable to a tit-for-tat retaliation,” said Mr Mohshin, pointing to a surging ethylene capacity that will likely exceed domestic American demand. If US petrochemical exports struggle to find buyers, inventories will be drawn down and producers will see orders climb to offset the margin, he noted.

Mr Mohshin said: “If this situation prolongs, it could create an artificial supply crunch and push up petrochemical prices, in our view.” He added that China and India, which are petrochemical consumers, have the wherewithal to absorb higher prices, to protect industries affected by US tariffs.

Malaysia boleh

Should China look to punish the US in a trade war, Mr Mohshin said that it could “easily exclude US supply” of ethylene and turn instead to the Middle East and Asean.

“China is avoiding petrochemical imports from the US, instead preferring to source from regional countries in support of its (Belt and Road) initiative,” he said.

“Malaysia is in the list of countries favoured by China, as both have a longstanding good diplomatic and trade relations.”

Mr Mohshin remained neutral overall on the Malaysian petrochemicals sector, noting that it is still in a growth phase from an economic standpoint. “However, the escalating trade-war tensions are creating distortions in the global supply-demand chain,” he said.