Plastics Industry Investment Will Be Challenging

Restricted by the aggravation of the trade friction between China and the U.S., some plastics industry investors pressed the pause button on their investments at CHINAPLAS in 2019, including Top Polymer Enterprise, a manufacturer of thermoplastics elastomers whose headquarter is in Liyang City, Jiangsu Province.

Due to the uncertainties of the tariffs, Top Polymer Enterprise postponed its $15 million investment on the project of building its first factory in the U.S., because its supply chain and profit suffered a lot from the increasing tariffs.

“Today, everyone suffers a lot on the current market environment,” said Cong Guiyang, president of Top Polymer Enterprise, during an interview at CHINAPLAS. The exhibition was held in Guangzhou from May 21 to 24, attracting approximately 180,000 players.

Cong Guiyang said that his company will firmly carry forward its investment on the project in the U.S., and the project is expected to be finished in early 2020.

However, the uncertainties of the relationship between China and the U.S. made the company postpone its investment. Some of the exhibitors at CHINAPLAS also stayed on the sideline. For example, Davis-Standard LLC, the extruder manufacturer in the U.S. pointed out that the Chinese customers chose to postpone investing facilities made in the U.S. because of the tariffs. Sekaran Murugaiah, vice president of the Asia-Pacific business development of Davis-Standard LLC, said that, from June 1, the U.S.-made facilities from Davis-Standard LLC suffered higher tariffs when exporting to China. Because the U.S. government announced that from May 10, 2019, the tariff rate, which was imposed on the $200 billion list of goods imported from China, would increase from 10% to 25%. China then raised the tariffs on some U.S. products, including the facilities from Davis-Standard LLC, with tariffs increasing from 5% to 25%.

“Some of our Chinese customers have already postponed their investment plans on buying equipment from the U.S.” Murugaiah said, “We have experienced this situation before. But they haven’t canceled their orders and have been staying on the sidelines.”

A Chinese executive said that the Chinese and the U.S. governments showed us that they had come to an agreement. But the rising tariffs in the past few weeks reversed the situation, which seems to restrict the recovery of the Chinese plastics equipment market in March and April.

Zhen Ronghui, CEO of Guangdong Yizumi Precision Machinery Co., Ltd., a publicly traded Chinese injection molding machine manufacturer, said that due to the expectation that the Chinese and U.S. governments will come to an agreement, the customers in the plastics industry purchased more in April. "The situation has changed now, and the customers have been hesitating. This is about the confidence." Zhen Ronghui said, "Now, everyone stays on the sideline once again."

Challenging Plastics Industry Environment

In 2018, the Chinese plastics industry experienced more challenges. For example, Haitian International Holdings Limited, the world’s leading manufacturer of injection-molding machines for plastic products, publicly stated that the trade war "initiated by the U.S.” "reduced investors’ confidence.” Adsale Exhibition Services Ltd, the organizer of CHINAPLAS, pointed out that influenced by the market volatility and the tightened environmental protection policies on the plastics industry, China's output of the plastic products increased by only 1.1% in 2018.

Cosmos Machinery Enterprises Limited, a Hong Kong-based Chinese equipment manufacturer, also felt the impact of trade tensions. Huang Yaoming, executive vice chairman of the company, said that the business slowed down in H2 2018, and the increasing tariffs and the anti-tariff war in recent weeks damped the market stances. "For the mechanical equipment, what affects us is not a real impact, but the uncertainty that makes everyone nervous about the future investments," Huang Yaoming said.

Rising Tariffs

Martin Pavlik, director of business development at SI Group, said that for some special products traded between China and the U.S., their output is unlikely to be transferred, so the company suffers the risk of losing business. “What we lost is the price competitiveness, because local Asian producers or European producers are not suffering any impact from the trade war.” He said, “Although we have many products that are benchmarks in the industry, the cost is the key to everything. Our sales volume hasn’t decreased because we have done our efforts, but how long we can last is only a matter of time,” Pavlik said in an interview at CHINAPLAS.

Li Mingzhuang, vice president of Asia-Pacific business for Dow Packaging and Specialty Plastics, said that, Dow Chemical can control the impact of tariffs on its business department by transferring purchases between different production bases in global. He pointed out that in China, the demand for plastics from packaging products will still maintain an annual growth rate of 10% to 20%. "For the packaging market, we believe that basic demand still exists." Li Mingzhuang said.

The U.S. plastic materials industry strongly opposed China and the U.S. to impose tariffs. The American Chemistry Council (ACC) and other lobbying groups said that China is now the world's largest plastics market, and tariffs damaged the U.S. exports to China. ACC said in early May that tariffs have begun to destroy the supply chain of the U.S. plastics industry, and it has also weakened the competitiveness of the U.S. petrochemical industry.

However, companies in other areas of the U.S. plastics industry supported the tariffs on products such as plastic packaging and plastic flooring and said that they suffered unfair competition from China. Organizations supporting tariffs said that China's industrial policies are good for its own industries and that tariffs mean that there will be more jobs provided by the U.S. factories.

Although almost all the exhibitors at CHINAPLAS were against tariffs and trade conflicts, in the U.S. plastics industry, public opinions were sharply divided. Partly because the annual U.S. trade deficit with China's plastics is about $11.5 billion, hereinto, the trade deficit exists in the plastics, the machinery and the molds, while the trade surplus with China only exists in the resin sector. The trade surplus with China in 2017 was $2.7 billion.