Chinese Plastics Factories Face Mass Closure As U.S. Ethane Supply Evaporates

U.S. Propane Tanker Diverts Chinese Port Call In Latest Warning Sign For China's Plastic Factories

Fast forward to this week: trade tensions continue to ease as U.S. and Chinese officials met in London and reached a preliminary framework to resolve key trade disputes.

Here's UBS' takeaway on positive trade headlines coming out of London: 

The U.S. and China agreed the parameters of trading arrangements on May 12, but each side has since accused the other of failing to meet the requirements they set. This week U.S. and China officials have held new talks in London that concluded late Tuesday. In effect, the talks created a London framework under which the Geneva framework can be applied. In reality, it comes down to China agreeing to greater exports of rare earths to the U.S.; and the U.S. agreeing to ensure China maintains access to U.S. chips. Note – it's a very, very long way from a trade deal. All that's been agreed between the two European meetings is a de-escalation and some attempt to allow each country to get on with its work. The next steps are a period of time for each side to consider whether the other is now meeting its requirements and if each is, then that opens the door to talks on broad trade arrangements. Coming up in early August is the expiry of the 90-day tariff reprieve Trump allowed on China after the Geneva agreement.

Returning to China, the world's top plastics manufacturer, which relies heavily on U.S. ethane, a key petrochemical feedstock and natural gas component, trade war tensions in April posed a serious threat to those U.S. supply lines.

As we noted at the time, disruptions were already unfolding, risking feedstock shortages that could have idled Chinese plastic plants. And given that nearly everything today is made of plastic in the modern economy—and often in Chinese sweatshops—a prolonged supply shock had the potential to spark turmoil globally. 

Now, with trade tensions easing, Bloomberg reports that Chinese plastics manufacturers are cautiously increasing their purchases of U.S. propane.