Trump tariffs poised to exacerbate woes of ailing petchems sector
Tariffs announced by President Donald Trump on Wednesday, 2 April 2025 are expected to drive up prices for goods such as electronics, appliances and packaging, denting consumption and curbing demand for the petrochemicals used to make plastics and industrial chemicals.
While imports of oil, gas and refined products were exempt from Trump's tariffs, refining margins in Asia for key petrochemical feedstock naphtha plunged 13% to $73.07 per metric ton over Brent crude on Thursday, their lowest since 17 January 2025.
"In the short-term, say two to three years, demand is going to be hit in export-based economies and if tariffs are imposed without further changes, the recovery in margins will be pushed out by six months to one year," said Pankaj Srivastava, senior vice president at Rystad Energy.
"Those economies will be under pressure to lower utilisation rates at their plants and shut some of the existing loss-making assets," he added.
Naphtha margins reached as high as $257 per ton in March 2022 amid fears of supply disruptions on the Black Sea route due to the Russia-Ukraine war.
Since then, margins have collapsed as global petrochemical demand has softened while new capacity has come online, mostly in China. Several consultancies forecast a recovery only by 2027-28, when Chinese capacity additions slow.
Major producers in Asia and Europe have been offloading assets and shutting aging plants, while US operators have switched to less expensive feedstocks such as ethane over naphtha to weather the downturn.
Industry insiders now expect further industry pain in the aftermath of Trump's tariffs, with some producers in Asian economies including export powerhouses Taiwan, South Korea and Japan likely facing added pressure to shut.
Plants are already running at minimum rates due to the weak margins and tariffs might force them to make the tough decision to shut down, said an official at a global petrochemical trader, declining to be identified as he was not authorised to speak with media.
Import levies could also force a costly reshuffling of trade flows and supply chains already upended by sanctions on Russian oil exports and Houthi attacks in the Red Sea.
China and the European Union have vowed countermeasures.