If China goes ahead with its proposal to slap a 25 percent tariff on polyethylene and liquid propane, which were among 106 American goods targeted, buyers in the Asian nation may look elsewhere for alternatives to pricier U.S. supplies. And the energy-rich Middle East with plenty of petrochemical supplies looks well-suited to meet the substitution requirements.
The region is already Chinas biggest source for polyethylene -- one of the most commonly used plastics in the world -- and can further boost exports to the country along with another major seller South Korea, according to Goldman Sachs Group Inc. China may need to replace 2.3 million metric tons of PE next year if the tariffs are implemented, the bank said.
China imports 12.7 million tons of the product a year, of which the U.S. currently accounts for only 600,000 tons, Goldman estimates. But purchases from the U.S. have the potential to grow more than threefold over the next two years if the tariffs arent implemented, it said.
As for propane, China is the third-biggest export market for the U.S. and has boosted purchases from there in recent years. Although the tariffs wont hurt America as much as intended, the most likely alternative option is the Middle East as more supplies come on stream there, according to industry consultant Energy Aspects Ltd.
In particular, Iran stands out as a likely beneficiary as the Persian Gulf nation can sell the gas at a discount to regional contract prices, said FGE consultant Ong Han Wee. Iran is an attractive alternative, he said. Chinese companies will have to diversify their supply sources more toward Iran.
