China to impose tariffs on some chemical imports from Taiwan from Jan

China is set to impose tariffs on some chemical products imported from Taiwan from Jan. 1, 2024, according to a notice this week on the Chinese Ministry of Finance website.

"Taiwan has unilaterally adopted discriminatory bans, restrictions and other measures on the export of mainland products, violating the provisions of the Cross-Strait Economic Cooperation Framework Agreement," the notice stated.

In an earlier statement released Dec. 15 by Taiwan's Office of Trade Negotiations of the Executive Yuan, Taiwan had rebuked the results of China's trade barrier investigation released on the same day, claiming they were politically motivated.

The ECFA, which came into existence in 2010, was aimed at creating a more conducive environment between the trading parties through tariff reductions, sources said.

From January, chemical products such as paraxylene, propylene and orthoxylene exported from Taiwan to China will be eligible for tariffs that were previously not levied under provisions of the ECFA, the notice further stated.

Some other products listed include butadiene, isoprene, meta-xylene, dodecyl benzene, chloroform, chloroethylene, ethylene propylene copolymer and other primary form olefin polymers.

Many market participants were caught off guard by the announcement.

The relation between Taiwan and China remains tense, a trader in China said, referring to the ongoing political friction between the two countries.

A Taiwan-based source expected limited impact of the announcement on existing trade flows, as tariff benefits from the ECFA were already seeing a downward trend.

According to estimates from the Taiwanese ECFA website, savings from tariff cuts fell by 37% in the first two months of 2023 compared to 2022.

Paraxylene imports to become costly

Under the provisions of the ECFA, the 0% tariff on imports of PX from Taiwan will now change to 2%, sources said.

"It means that the reduction of the PX tariff [on imports] from Taiwan will be cancelled starting Jan. 1, 2024," a polyester producer in China said.

Taiwanese producers of PX and purified terephthalic acid will feel the pinch of the new tariffs, sources added.

"Our PX will ...[feel the] pressure, PTA also," a Taiwanese producer said. "2% profit lost."

Some traders in China said the development will mainly impact Taiwan's Formosa, which operates a 1.2 million mt/year PTA plant at Ningbo. A second Formosa PTA line of 1.5 million mt/year is set to start around March 2024, sources with knowledge of the matter said.

The PX imported from Taiwan is channeled to Formosa's PTA plant at Ningbo, so there will be limited effect on other Chinese PX buyers, another Chinese trader said.

"The PX from Taiwan area cannot be sold to other trading houses or PTA buyers in China," the trader added.

Over January-October 2023, China imported approximately 1.06 million mt of PX from Taiwan, down from 1.14 million mt in all of 2022, data from the China Customs Statistics Information Center showed.

Other xylenes like orthoxylene were also hit by a tariff increase, but a Chinese end-user said the impact was small due to reduced import demand from China in recent years.

According to Taiwan customs, Taiwan exported 18,000 mt of OX over January-November 2023 to China. That was the second largest export volume after the Netherlands at about 50,000 mt.

Formosa Chemicals and Fiber Co., Taiwan's only producer of PX and OX, can produce about 1.76 million mt/year of PX and 480,000 mt/year of OX, S&P Global Commodity Insights reported earlier.

PP copolymer trade flows may be unchanged

Meanwhile, the tariff on imports of Taiwanese copolymer grade polypropylene is set to move up to 6.5% from its current duty-free status from Jan. 1, market sources said.

Taiwan is the second largest exporter of copolymer PP to China by volume after Singapore, making up around 21% of all imports from January to October this year, according to data from China's National Bureau of Statistics.

Market sources said overall PP trade flows are likely to remain largely unchanged, as they expect Taiwanese sellers to lower their offer prices to China in order to remain competitive.

"Like South Korea, Taiwan has a freight advantage to other importers like Singapore or the Middle East, while many Chinese customers are used to their product," said one source.

Some converters based outside China also expect more favorable trading terms with Taiwanese sellers going forward as they look to diversify their import destinations.

"We don't really [buy a lot of copolymer PP from Taiwan] due to the high price, but we will see [what happens] later," said one buyer.

Limited impact on butadiene

Market sources said there will be limited impact of the announcement on the Asian butadiene market as China's butadiene imports from Taiwan were small.

Over January to October, China's butadiene imports from Taiwan were at 1,998 mt only, compared to its total butadiene imports of 356,013 mt, according to the latest data from Chinese customs.