The trade group for US chemical manufacturers Thursday decried the Trump administration's decision to impose steel and aluminum tariffs on Canada, Mexico and the European Union, saying more-expensive building materials could undercut advantages that prompted companies to build a slew of petrochemical facilities in Texas, Louisiana and Pennsylvania.
S&P Global Platts news feature: Canada, EU, Mexico to be subject to US metals tariffs
"When these tariffs go into effect on Friday, trains arriving to the US from Mexico and Canada will be carrying metals that are 25% more expensive than when they left the station just a few days ago," American Chemistry Council CEO Cal Dooley said in a statement. "The impacts will be felt immediately in the form of higher prices for chemical manufacturers who rely on these imports to expand or build new production facilities, many of which are under construction at this very moment."
Eight new steam crackers and 13 new polyethylene plants are starting up in Texas and Louisiana from 2017 through 2019 in light of the massive bounty of cheap ethane to emerge from the natural gas shale boom. Recent gains in oil prices have boosted that advantage, as most crackers outside of North America run largely on naphtha, which is tied to oil prices, while ethane is more competitive because its pricing is tied to natural gas.
Of those, three of the crackers and seven of the polyethylene plants have started up. More infrastructure is planned to start up in 2020 and beyond, including Total's new cracker under construction in Port Arthur, Texas, and Shell Chemical's petrochemical complex under construction in southwestern Pennsylvania.
Shell spokesman Ray Fisher said Thursday that, based on the company's "current conversations and understanding," a commitment exists between the energy industry and the Trump Administration "to work through the implementation and application of the tariffs. Our goal is to better understand the specific parameters and what, if any, exemptions might apply to Shell's current and future projects."
Individual companies can seek exemptions to tariffs on materials, but the application process can be lengthy, requiring separate requests for materials that may differ in makeup, rather than a single request for varied types.
The US first imposed 25% tariffs on steel and 10% tariffs on aluminum imports in March, but granted exemptions to Canada, Mexico and the EU. Canada is the largest exporter of steel to the US, and the EU is the US' largest trading partner.
All three responded swiftly with plans or threats to impose taxes on US goods. The EU's list of targets includes corn, cranberries, cotton bedding and clothing, types of stainless steel, iron or steel containers, appliances, canoes, whiskey and playing cards. Mexico's list includes flat steel, lamps, pork products, apples, grapes and some cheeses. Canada's list also includes types of steel, including that used for railway track and pipelines, as well as coffee, maple syrup, toilet paper, beer kegs, types of aluminum, sailboats and sleeping bags.
ACC represents major chemical manufacturers, including DowDuPont, ExxonMobil Chemical and Chevron Phillips Chemical, all of which are among manufacturers opening new US petrochemical plants.
Dooley's statement said that US chemical manufacturers have kept a competitive edge by extending regional supply chains. Resin packagers have expanded and built new capacity to ready most if not all of the new polyethylene output for export, and ports have upgraded wharves, added cranes and made other improvements to accommodate more traffic in light of the boom in petrochemical construction.
Dooley said that not only could increased costs chill new projects, retaliation from US trading partners could curtail exports, eroding $194 billion in chemical investments predicated on US exports to countries targeted by tariffs.
Some market sources echoed Dooley's concerns. "This could quickly escalate into a trade war," a source said. "This is not good for anybody in the entire world."
But another source said the decisions to lift the steel and aluminum tariffs exemptions for those three regions could be part of a bigger effort to renegotiate the North American Free Trade Agreement with Mexico and Canada as well as trade deals Wit EU countries.
"This is all a negotiating ploy with Trump," a source said. "We'll see how it all shakes out."
