Analysis: Vietnam emerges as polymer hub amid trade war

Vietnam is positioning itself as southeast Asia's top polymer hub as it indirectly benefits from the US-China trade war.

The trade war has created two positive spillovers for Vietnam, through the increased availability of cheaper US-origin cargoes and the emergence of new conversion investment from China.

Vietnam is a key importer of polymers, with estimated imports of 5.59mn t/yr of polyethylene (PE), polypropylene (PP), polyethylene terephthalate (PET) and polyvinyl chloride (PVC) in 2018, according to the Vietnam Plastics Association (VPA).

PE imports totalled 1.73mn t/yr, while PP imports were at 1.34mn t/yr last year, the VPA data show.

Vietnam's imports typically come from the Middle East, South Korea and Association of Southeast Asian Nations (Asean) member countries such as Thailand, Malaysia and Singapore.

But the emergence of US PE supply is adding new flows. More resins from the US that were originally bound for China are instead expected to make their way to Vietnam, especially given the country's attractive import duty structure.

US producers are steering clear of China because of restrictive duties placed on most polymers. The tariff rate on some US imports from China, including certain polymer grades, is scheduled to rise to 30pc from 25pc on 15 October.

By contrast, Vietnam has set its import duty at zero for PE and at 3pc for PP from most origins outside southeast Asia. Asean countries are exempt from duties when selling PP to Vietnam.

Import reliance

Vietnam does not have any existing PE production, making it highly dependent on imports. The country imports around 70pc of its domestic PP requirements.

Nghi Son Refinery and Petrochemicals (NSRP) produces 370,000 t/yr of PP, while Binh Son Refining and Petrochemical (BSR) operates a 150,000 t/yr PP unit, according to Argus data.

Most PE and PP is sold to Vietnam directly by producers or by international traders with distribution channels in the country. Global polymer traders such as Vinmar and Tricon have started to export US-origin PE from Houston into Vietnam and other Asean nations in their own branded bags in recent months.

Shipment timings from the US to Vietnam vary from two to three months, depending on occasional port congestion in Houston. Asean-origin material benefits from shorter transit routes, ranging from a few days to two weeks.

The largest polymer distributor in Vietnam by far is OPEC Plastics, thanks to its significant distribution channels across the country for PE, PP, polystyrene (PS), ethylene vinyl acetate (EVA), PVC and PET. OPEC Plastics, which also exports PE out of Houston, has an international presence in Asean, China, Russia and the Middle East.

Chinese investment

The Vietnamese polymer industry is increasingly attracting newer investments from Chinese convertors, which are shifting their factories to the country to circumvent restrictive tariffs on US-origin PE. Taiwan's Formosa Plastics, South Africa's Sasol and global producers ExxonMobil and Lyondellbasell are among the companies that have added new PE capacity in the US this year. The absence of extensive China distribution has helped drive Vietnam's fast emergence as a key outlet in Asia for these newer US capacities.

The wave of relocations of Chinese convertors to Vietnam has happened relatively quickly, with only slightly more than a year having elapsed since the trade war first escalated. The investments in Vietnam also come as China is forging ahead with its Belt and Road initiative to expand its international investments in southeast and central Asia.

Three out of 10 new convertor units in Vietnam have now been bought by polymer factories with Chinese owners, a major machinery manufacturer said.

Chinese convertors with a presence in Vietnam have had to act quickly to preserve their businesses, which have already been hit by sluggish domestic growth in downstream sectors such as automotive and packaging in China.

High-level US-China talks will resume this week in Washington, but prospects for a deal that would resolve the trade war between the two countries remain remote.

Vietnam-EU FTA

The new Vietnamese factories, most of which are Chinese-owned, are not just expected to benefit from buying cheaper PE resins from the US but will also soon be able to sell finished products to Europe at preferential duty rates.

The EU and Vietnam signed a free-trade agreement (FTA) in June that will progressively eliminate nearly all customs duties on goods traded between the two sides. The FTA is likely to be formally ratified later this year.

Vietnam may also emerge as an alternative export destination for newer Chinese PP resin producers. Guangxi Petrochemical and Sinopec Beihai operate polymer units in Guangxi, close to the China-Vietnam border.

Vietnam will add to its existing PP capacity and introduce PE production for the first time in the coming years. South Korean textiles and chemicals maker Hyosung will start a new petrochemical complex in Vietnam's Ba Ria-Vung Tau province early next year. Its new 300,000 t/yr PP unit is scheduled to come on stream in the coming months.

In the longer term, Long Son Petrochemicals, majority owned by Thailand's SCG, is scheduled to start up a new 450,000 t/yr PP unit and 1mn t/y PE plant in 2024 in Vietnam's Vung Tau, Argus data show.