International retaliation to the Trump administration’s steel and aluminum tariffs could pose a risk to US chemical manufacturers, especially exporters, according to a report by Moody’s Investors Service (New York).
However, announcements thus far have been mild and will have very minor impacts. If trade tensions escalate, the industry will be threatened, Moody’s says.
The only chemical product named as part of China’s retaliatory actions last week was ethanol. While this is negative news for ethanol makers, its impact on the overall chemical industry will be negligible, Moody’s says. The move could put some pressure on ethanol margins, as US exports of ethanol to China had crept up again earlier this year after falling in 2017.
Other risks loom beyond what has been announced. “Escalating protectionism around the world would hurt [industries] that produce specific commodities, including commodity chemicals,” Moody’s says. “The extent of protectionist trade measures around the world remains very uncertain.”
The credit ratings of producers of agchems, fertilizers, and petrochemicals will be hardest hit in a scenario of escalating protectionism, owing largely to export reliance and weak credit metrics, Moody’s adds. Petrochemical makers could face tighter margins as new capacity comes onstream in the coming years—a double whammy if protectionism becomes an issue.
The US chemicals sector is a net exporter, and much of the new capacity coming onstream on the Gulf Coast is intended for export, as domestic supply will outstrip demand.
Meanwhile, the steel and aluminum tariffs themselves are expected to modestly increase the cost of building new crackers and chemical projects. “Rapidly increasing labor costs over the past several years…placed a much bigger strain on project costs than the proposed steel project would,” Moody’s says. North America’s advantaged feedstock position remains the biggest driver for investment decisions, the ratings agency adds.
By Vincent Valk
Source: Chemical Week
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