China, the world’s dominant plastics manufacturer, gets almost all its ethane, a petrochemical feedstock that is also a component of natural gas, from the US. Eye-watering tariffs on American goods mean plants that cannot process substitute raw materials will bleed money.
“The situation is dire for China’s ethane crackers as they have no alternative to US supply. Unless they are granted tariff exemptions, they may have to stop production or close shop.”
Most crackers in China use naphtha as a feedstock, with processors that solely use ethane as raw material for petrochemicals making up is less than 10% of the total at about 4 million tons. China is by far the biggest buyer of American supply.
With 125% tariffs in place, factories would have lost $184 for every ton of US ethane they processed in the week ending Apr 11. That compares with more than $100 they would have made in profits if there were no tariffs.
The extra costs are another blow for China’s plastics sector, which is already dealing with a glut as the growth in production capacity exceeds demand. The tussle is also threatening other feedstocks, including natural gas liquids and propane — and has led to sharp drops in US prices.
Across China, domestic ethane production won’t be able to plug the gap, with the nation producing around 120,000 tons in 2024.
Furthermore, the ethane market “is marked by long-term contracts, with little to no opportunity to resell cargoes on the spot market”, making it tough for the Chinese to obtain alternative supplies from non-US sources.
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