Vietnam's plastic end-users set to gain as US-China trade spat intensifies

The global plastics supply chain is changing as the US-China trade war intensifies, and Vietnam's plastic resin end-users are poised to benefit.

While Vietnam is already a manufacturing hub for plastic finished goods due to its low labor costs and business-friendly environment, the recent trade war between global giants is providing an additional boost as key resin costs decline.

US polyethylene, which was slapped with a tariff by China in the opening shots of the trade war, is now heading to Vietnam at a rate of around 20,000 mt/month, up from 3,000 mt/month in 2017, according to distributors.

The Chinese tariff on US PE was part of a $110 billion retaliatory tariffs package imposed in response to the US' $250 billion tariffs on Chinese products.

Related special report: US Chemical industry caught in US-China trade war(opens in a new tab)

As the industry gathered in Ho Chi Minh City for VietnamPlas 2018 in October, the impact of the trade war was just beginning to be felt.

Vietnam-based polymer traders with extensive local distribution channels were the first to take advantage of cheap US PE.

Nguyen Dang Quang, General Manager Middle East of OPEC Plastics

"We now buy direct from US [producers] such as Dow Chemicals, Westlake Chemicals, Chevron Philip, LyondellBasell US, and others. Chinese companies used to do this business, but after the trade war began, we took their allocations," Nguyen Dang Quang, General Manager Middle East of OPEC Plastics, said during VietnamPlas.

"Our connection with end-users is the key and we can buy in bulk -- 10,000-20,000 mt [per order]," he added.

US PE imports in Vietnam are currently $80-$100/mt cheaper than Middle East origin PE cargoes of the same grade, undercutting traditional suppliers to the region -- even after accounting for unfamiliarity with US material and unfavorably long voyage times.

Industry participants at VietnamPlas expected ample US imports to continue to tip the scales towards oversupply in Vietnam for the duration of the trade spat, and no one volunteered a prediction on how long that would be.

Nguyen Thai Mai Anh, Chemical Department of Mitsubishi Corporation Vietnam

"In the short term, because of the US-China trade war, we forecast that the local polyethylene market price will be on a downward trend because of supply [outpacing] demand," Nguyen Thai Mai Anh from Mitsubishi Corporation Vietnam said.

Meanwhile, local polymer end-users see opportunities as supply chains begin to reroute from China to Vietnam, but are cautious about rushing to commit to expansions.

"Walmart is looking to move orders to Vietnam to avoid [US] duties on finished plastic products [from China], but I don't see a big increase [in resin orders] from my customers supplying Walmart yet," Nguyen Dang Quang from OPEC said

THREE WAVES ON VIETNAM'S SHORES

Supply chains impacted by the US-China trade war will move into Vietnam in three distinct phases, according to David Hsu, General Manager of Kim Hoang Long, a major PS and ABS distributor for Taiwan's Chi Mei Corporation in Vietnam.

David Hsu, General Manager of Kim Hoang Long

"First, [plastic finished goods] orders will move to Vietnam and other Southeast Asian countries, and we're beginning to see that," he said.

"Secondly, next year, companies with capacity in both countries will expand Vietnamese capacity while Chinese capacity will [be relegated to] serve mostly domestic demand. Thirdly, companies with no footprint in Vietnam may open new factories [there], but that will take time," he said.

On the polystyrene front, he predicts the trade war will bring 5%-10%/year extra resin demand into Vietnam on top of the base growth rate of 15%-20%/year.

Vietnam's auto sector will also likely see a surge if the trade war persists, both from automakers feeding into Vietnam to avoid duties and from startups. New automotive factories would bring with them demand for automotive plastic parts, and in turn for PS and ABS.

Experts say modern global supply chains will inevitably find a path around the US-China trade tension.

"Persistent trade tensions could lead companies to move part of their operations, provided their adjustment costs are lower than the benefit resulting from avoided tariffs," said Vishrut Rana, Asia-Pacific Economist at S&P Global Ratings.

"Southeast Asian economies, including Vietnam, offer favorable cost propositions and a good track record in attracting export-oriented foreign direct investment," he added.

Related articles: ** More US polyethylene to hit Vietnam's shores in Q4 as US-China trade war intensifies ** Vietnam's polyethyelene prices seen set to weaken in early 2019 as imports outpace demand ** Vietnam's polypropylene capacity set to exceed domestic demand by 2023 ** Vietnam 2019 polystyrene demand to get a boost from trade war, auto sector - distributor