Pursue and retain markets with stable but firm growth prospects

Economic think-tanks were previously more optimistic about an economic recovery this year, following recent years of slowdowns driven by inflation. But the tariffs have now caused a downward revision in some of these projections. Gross Domestic Product (GDP) growth forecasts in the US, Mexico and Canada have been slashed heavily. But China, South Asia, Turkey and Africa will see steady GDP growth projections.

The immediate standout in the revised GDP Purchasing Power Parity (PPP) projections is South Asia, holding the highest GDP growth forecast among key polymer markets this year. The growth is set to be mainly driven by India, where government infrastructural investments are driving polymer demand. Middle East producers have led the charge in India, with the UAE being India’s top import origin for polyethylene (PE) and polypropylene (PP) in 2024. Retaining this position will be key in weathering the tariff storm.

China and Southeast Asia (SEA) also stand out as growth prospects look firm with minimal cuts post-tariffs, amid a sea of slashed GDP growth forecasts. These regions could be key trading partners for GCC producers, especially in PE.

Growth projections in Turkey and Africa, while modest, are steady. These regions are expected not to be as badly impacted by recent tariff announcements compared to other regions. GCC producers are best poised to capture these markets given the geographical proximity. North and West Africa are highly desirable as they are growth markets that GCC producers can rely on in the long term.

Brace for increased competition in key markets

The tariffs could see GCC polymer producers face stiff competition from producers from two key regions – China and Southeast Asia.

China has seen a huge increase in PE and PP capacities in recent years, with more on the horizon. With the US being a major energy exporter, Chinese producers will be facing difficulties in importing propane from the US with the announced 125% retaliatory tariffs by the Chinese government.

To circumvent these retaliatory tariffs, Chinese producers are hoping to get exemptions on Liquified Petroleum Gas (LPG) imports from the US through a handbook re-export policy from the government. Nothing has been made certain at the time of writing. But for Chinese propane dehydrogenation (PDH) producers to get exempted, they would need to export the PP produced from the imported LPG.

China’s 2024 PP exports rose sharply, even with the challenge of tight container availability for most of that year. This could be a threat to GCC producers. Chinese producers were able to offer cargoes at competitive prices to regional players in Vietnam and the rest of SEA, as well as distant regions like Latin America, and East and West Africa despite having weak PDH margins.

GCC producers will need to brace themselves for intense competition in regions where China has found success in exports. China’s 2.4 million tons of PP exports last year demonstrates the ease at which it can intensify its exports. More buyers in international markets have become accepting of Chinese PP cargoes, contributing to the 1.1 million ton jump seen in 2024.

In SEA, the recent tariff retaliations by China could spark a revival in operating rates at naphtha-dependent producers.

Naphtha prices declined to over nine-month lows on 8 April because of the escalating tariff war. Current prices are far lower than that of the last year, despite a modest recovery. With polymer prices hovering at similar levels, margins improved for SEA cracker operators.

This could incentivize SEA polymer producers to raise operating rates if this trend holds for the long term, creating challenges for GCC producers in the SEA region and potentially beyond in countries like India where SEA cargoes have trade agreements with duty benefits.

To fend off the competition, GCC producers will need to deepen their relationships with buyers in key markets to retain their market shares there. Leveraging on long-standing customer relationships while focusing on quality production standards is a sure-fire way to keep customers coming back for more.

Ultimately, GCC producers would need to leverage their most prized competitive advantage – cost-efficient feedstock. At a time when competitors are looking to increase their market share following an extended downcycle, GCC producers will need to protect their own market share by offering cargoes at competitive prices in regions that will attract other key producers.

Fill in supply gaps arising from tariffs

Should tariffs be implemented in its current proposed form, global polyolefin trade flows are set to change. GCC producers are in pole position to steer this change, given their global presence.

GCC producers will need to keep their eyes on China and SEA. In 2024, China imported 2.4 million tons of PE from the US. This accounted for 20% of its China’s PE imports. There is an opportunity here for GCC producers to plug this gap in supply from the US. The biggest barrier to this would be China’s domestic production which could raise operating rates to replace the 2.4 million tons. While this is possible for most commodity grades, specialty grades like hexene metallocene will be a challenge. GCC producers will need to position themselves properly to capitalize on this.

The US is currently looking at diverting these 2.4 million tons of PE to other regions such as SEA. But this diversion could also be a challenge for the US. Some SEA countries could potentially impose retaliatory tariffs on the US, making US PE imports in SEA unattractive. But this has yet to be confirmed.

GCC producers are well-positioned to replace the US cargoes in SEA if SEA countries impose retaliatory tariffs on the US. The geographical proximity to Asia Pacific puts GCC producers in better stead than the US in the minds of buyers there.

Turkey also presents a good opportunity for GCC producers to increase their market share. GCC producers already have a strong foothold in Turkish markets. The challenge during this tariff turbulence would be for GCC producers to defend their position in Turkey. The UAE and Qatar have already increased efforts to establish better trading relationships with Turkey through trade agreements. Other Gulf countries are in talks for trade agreements. This would go a long way in helping GCC producers increase their market share in Tukey, with trade agreements being the ultimate antithesis to tariffs.

Other regions are likely to be more challenging for GCC producers. The US will likely continue to play a major part in exporting to the Americas because of the proximity and promptness in delivery. Tariffs imposed on countries in the region are also relatively lower, with most subjected to the baseline 10% from the US except Venezuela which has been subjected to 15%.

Europe will also be a challenge for GCC PE producers. The world is waiting for a response from the European Union on any retaliatory tariffs. But recently leaked documents discovered by Argus suggest that LLDPE imports from the US would likely be exempted from any retaliation from the EU. This would put pressure on GCC producers in Europe, as the US would likely target Europe more aggressively due to a lack of export options following the tariffs. GCC producers could be better off focussing on other regions.

Uncertainly looms ahead

With tariffs being imposed globally in a tit-for-tat fashion, it will be difficult to predict how global polyolefin markets will change. GCC producers will need to stay nimble and pivot according to shifts in the market to capitalize on any new trends. Global producers will also be on the hunt for new opportunities, given the previous years of negative margins arising from high feedstock prices and a polymer oversupply keeping polyolefin prices low.

GCC producers would also need to keep an eye on China’s manufacturing industry. The high 145% tariffs by the US on Chinese imports could see Chinese plastic converters shut operations for good. New factories could pop up in other regions. We previously saw this happen during President Trump’s first term in Vietnam where more plastic converters are now based. Global brands like Apple have also relocated their factories to other countries like India. This trend could continue, spawning new manufacturing hubs in other areas.

Disclaimer: The views presented in this article are solely those of the authors and do not reflect the position of GPCA.