Leonardo: Welcome to this "Chemical Conversations" podcast, brought to you by the Argus Pine Chemicals and the Argus C5 and Hydrocarbon Resin Services. I am Leonardo Siqueira, one of the editors at the Pine Chemicals team, and today I'm joined once again by Steve Williams, Vice President for C5 and Hydrocarbon Resins here at Argus.
U.S. President Trump's new trade policy has sparked debate in many chemical markets. Pine chemicals and hydrocarbon resins are no exception. With Asia Pacific and more specifically China at the center of discussions, market participants have raised questions regarding pricing, supply, and demand outlook and trade flows affecting these and other regions. Looking specifically at C5 HCR markets, what have been the most immediate and visible effects of these ongoing trade disputes?
Steve: Well, since the original implementation of the Section 301 tariffs on U.S. imports from China back to 2018, we've seen reduced volumes of U.S. HCR imports from China dominated by C9 tackifiers where the U.S. is structurally short. The current additional tariffs under the temporary bilateral agreement between the U.S. and China see reduced volumes of tackifiers, including some volumes of C5 tackifiers continuing to flow to the U.S., but the larger home for Chinese HCR exports continues to be Europe, where supply-demand balances dictate a strong demand for HCR imports from Asia Pacific.
The current 10% retaliatory tariffs from the U.S. on imports from most of the other tackifier exporting countries has not dramatically altered trade flows to this point, but if the tariffs were to revert to higher levels in the absence of bilateral agreements with any of these exporting countries, then of course, we would expect tackifier flows to the U.S. to change dependent on the country-specific tariffs. The uncertainty of where any or all of the tariffs will end up and changing announcements from the U.S. administration are certainly not helping exporters in their decision-making. Thus far, we have not seen prices on the rise in the U.S. for hydrocarbon-based tackifiers, although economic theory should tell us that at least some of any increased tariffs should eventually be passed along to consumers where the U.S. requires imports to balance demand.
Leonardo: Looking in the section of hydrocarbon resins and rosin esters, participants have wondered whether there could be changes in trade flows from Asia Pacific to other regions given the existing restrictions imposed by the U.S. What's happening, Steve, and what should the market expect?
Steve: Any short-term changes in trade flows for tackifiers globally are obviously going to be a function of differing or very high tariff rates for one exporter relative to another for volumes to the U.S., or retaliatory tariffs for U.S. exports of tackifiers. The trade flows from Asia Pacific to the West also need to be viewed in the context of diminishing production capacity for tackifiers in both Europe and the U.S. We've seen a number of recent tackifier plant shutdowns from the likes of Arakawa, ExxonMobil, and Resin Solutions, which will serve to increase the flow of tackifiers, including C5s from Asia Pacific to the West.
Many of the Asia Pacific exporters of tackifiers outside of China have and will continue to move more volume to the U.S. if they see a relative tariff advantage versus their Chinese competitors. Conversely, the higher the U.S. tariffs on Chinese imports become, the more likely we are to see Chinese volume pushed in directions other than the U.S. But we need to note that Europe will continue to need sizable tackifier imports from Asia Pacific for all types of hydrocarbon resins, and with the latest announced shutdowns of tackifier production in the U.S. from ExxonMobil, the U.S. will be in a net import position for each of water weight, C5, and C9 tackifiers very shortly. The U.S. will need additional volumes of water weight and C5 tackifier imports to balance current and future demand, and these increases imports will need to include Chinese volumes, given the limited number of producers outside of China, making the result of the ongoing tariff discussions all the more relevant.
Leonardo, I'm sure there's been similar implications from the U.S. tariffs on the pine chemicals markets. How are these tariffs affecting the pine chemicals markets and current trade flows?
Leonardo: U.S. trade policy has also sparked debate and is already affecting different pine chemical markets. Repercussions can vary from market to market, and it will depend on whether there is a reasonably priced alternatives and supply. Although U.S. President Donald Trump paused the higher punitive tariffs for 90 days on 9 April, the flip-flop in policy and uncertainties about the response of trade partners like the European Union has created confusion with pine chemicals market participants pausing investments and delaying larger purchases. Nobody wants to make any decision, spend activities, or do anything new according to market participants. Some trade flows have already diverted. For instance, Chinese imports of gutter oil or gutter oil-based products from the U.S. are likely to be reduced with sourcing of these products shifting to Europe and Russia.
Steve: What can you say about how these are affecting rosin ester markets?
Leonardo: Brazil and Southern Europe are key rosin ester suppliers and sellers, and both have eyed U.S. as a potential growth market because of its size and also higher margins. The shutdown of gutter oil or CTO fractionation sites in the U.S. led some buyer to diversify their rosin ester supply base. Sellers in South America and Southern Europe reported an increase in pricing to U.S. clients on top of existing duties that already apply. So, container rates from Brazil to the U.S. are higher this year relative to 2024, and that has weighted on some business decisions, with some delaying purchases and others canceling orders. The larger adhesive formulators relying on tall oil-based rosin esters, or TOR esters, will likely face no major supply disruptions as supply agreements are often established for yearly or multiyear timeframes, and there is sufficient U.S. TOR ester availability to address the needs of these larger customers in U.S.
On top of that, U.S. TOR esters have become increasingly competitive even over Brazilian rosin esters as the ongoing U.S. 10% baseline tariff, import duties, and still expensive freight rates make the South American alternative not so attractive, depending, of course, on customer, product grade, and technical requirements. But the U.S. is a larger market and rosin esters also go into road market applications and demand for this should be increasing as we shift from spring now already entering summer in the Northern Hemisphere.
With China being at the center of the trade disputes and Chinese C5 HCR exports being diverted elsewhere, would U.S. adhesive formulators consider reformulating back to tall oil rosin ester applications? Is this a feasible scenario either on the short or the long terms?
Steve: There's definitely a push towards a greener and more bio-based adhesive industry and tall oil rosin esters have much better credentials than their hydrocarbon-based counterparts. But long-term supply growth of tall oil rosin esters with the shutdown of paper and fiberboard mills within U.S. remains a concern, especially where adhesive producers are looking for their feedstock supply to grow over time. Water weight tackifiers, be it C9, DCPD, or even C5 base, will also provide significant competition for C5 tackifiers in some markets, given their price competitiveness and much improved availability even relative to the beginning of the decade. So there'll continue to be a place for tall oil rosin esters in the feedstock mix, but limited supply and cost competitiveness issues will need to be addressed both in the short and longer term.
Leonardo: One last question on C5 HCR markets. As you mentioned, ExxonMobil and some of the other shutdowns, but specifically on the ExxonMobil product solutions, plans to stop escrow as branded tackifier resin production at its Baton Rouge, Louisiana complex by the end of this year. How would this affect the already short U.S. domestic C5 HCR supply? Could Brazilian, European rosin esters, whether tall oil or gum rosin base potentially replace the U.S. market supply shortness even with the 10% baseline tariff?
Steve: With the impending shutdown of ExxonMobil C5 HCR production in Baton Rouge, the U.S. will need to go from a net exporter of C5 tackifiers to a net importer initially in the range of 20,000 to 25,000 tons per year. Globally, there's no shortage of C5 HCR capacity to backfill the loss of ExxonMobil production, but most of the capacity is located in China. There could be an opportunity for rosin esters to make up for some of the lost C5 tackifier production, but pricing will need to be competitive on a delivered basis versus competing hydrocarbon-based tackifiers.
Other producers of C5 HCR in Asia Pacific outside of China will be looking to export additional volumes to the U.S., especially if tariffs on Chinese imports remain more elevated relative to any retaliatory tariffs on other HCR exporters such as Korea, Thailand, or Japan. If tariffs on Chinese exports are reduced from what we see currently, we would expect to see a surge in Chinese exports of C5 HCR to the U.S. at very competitive prices. So while we would see some additional use of imported rosin esters in the U.S., the global tackifier market remains a very competitive one, characterized by weak margins for HCR producers and a global excess of production capacity. Leonardo, it's been a pleasure joining you today for this latest podcast.
Leonardo: Thank you, Steve, for joining this podcast and this conversation, and thank you for listening to this podcast. If you would like a discussion about the pine chemicals and the hydrocarbon resin markets, and how we assess prices and market trends at Argus, please email us at leonardo.siqueira@argusmedia.com or steven.williams@argusmedia.com.
Steve: Thanks for listening. Stay tuned for future episodes.
