South-east Asia’s polymer production crisis worsens as US-China trade shift looms

[SINGAPORE] South-east Asia’s petrochemical industry is facing a double whammy of weakening export demands and potential import surges, as trade tensions could redirect US polymer to the region’s already-saturated market, sustaining pressure on production.

Polyethylene (PE) and polypropylene (PP), as crucial downstream segments, are encountering “considerable challenges” in the region, noted commodity markets intelligence firm Argus.

This is amid trade uncertainty exacerbated by a US federal appeals court ruling on Wednesday (Jun 11) that President Donald Trump’s tariffs can remain in place while it reviews an earlier court decision to block them. The latest ruling complicates newly drafted US-China plans to ease trade tensions.

Argus highlighted that additional US polymer supply is anticipated to enter South-east Asia as part of trade flow redirection, driven by cost-competitiveness and the low likelihood of countries in the region imposing retaliatory tariffs on US cargoes.

The London-headquartered research firm found that some US producers and regular exporters had already begun sending their cargoes to Vietnam instead of China.

“However, the situation remains fluid, and any continued shift in trade flows could contribute to additional supply entering the South-east Asian market,” the research firm said.

During the US-China trade war in Trump’s first term in office, US polymer exports were redirected to countries in the Asia-Pacific. Specifically, US PE exports to Singapore and Malaysia rose by 328 per cent and 264 per cent, respectively, Argus noted in another report released on May 30.

Plastic goods pressuring demand

Meanwhile, trade uncertainty could prompt new trade routes for finished plastic goods, beyond the polymer trade.

Chinese plastic products once bound for the US will likely seek alternative markets – including South-east Asia. This threatens to further strain the region’s export-dependent finished goods sector, putting indirect downward pressure on polymer demand.

In 2024, around 8 per cent of the US’ imported finished plastic goods came from South-east Asian countries, which now see the risk of a significant fall in demand, noted Argus.

Around 17 per cent of China’s PE imports were from the US in 2024. The intelligence firm noted that South-east Asian countries could explore opportunities to increase run rates and export PE to China with low-cost feedstocks amid the trade tensions between the world’s two largest economies.

“But this remains a challenge for the region, as it predominantly relies on naphtha as a feedstock, which is less cost-competitive than lighter options,” it added.

It also said that limited upstream integration further disadvantages the region, compared with markets in the Middle East and North-east Asia, where more integrated supply chains enhance cost efficiency.

China factor

Other than trade uncertainty, China’s expanding polymer production capacity also threatens to deepen South-east Asia’s existing polymer production crisis, where some regional crackers had been in extended shutdowns since late 2024.

Fumiko Dobashi, manager of Asia-Pacific chemicals price reporting at S&P Global, highlighted a trade dynamic between the US, China and Asia in a briefing on Jun 3: The US exports raw materials such as ethane, liquefied petroleum gas and polymers, while Asia ships back finished plastic products and rubber products.

However, China has been expanding its polymer capacity, transforming itself into a net exporter from a net importer and adding to the polymer flood into nearby regions, said Dobashi.

She noted that while the US remains a major polymer exporter, the trend of China becoming a significant player continues, with the country increasing its exports to Asean nations such as Vietnam.

Declining operating rates

Over the past five years, South-east Asia’s PE and PP operating rates have declined by 25 per cent and 20 per cent, respectively, on average as exports fell and imports rose, Argus noted.

Meanwhile, the region’s PP net trade position has shifted from net exporter to net importer since 2022; as has its PE trade position since 2024, amid China’s accelerated progress towards self-sufficiency and increasing exports.

Specifically, China’s PP exports into the region have trebled to 636,000 tonnes over the past five years, mainly to Vietnam and Indonesia.

China’s focus on self-sufficiency also significantly reduced South-east Asia’s PE and PP exports by 1.8 million tonnes, or 37 per cent, over the same period, according to the research firm.

It added that the region’s polymer prices will be further depressed by shrinking downstream export demand and more supply entering the market.