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April 27 2020

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24 The Journal of Commerce | April 27 2020 Special Report Gulf Trade: Top Carriers and Ports AFTER TWO YEARS of double-digit percentage growth, analysts expect US resin exports to drop in 2020 as plummeting oil prices make foreign producers more competitive with US manufacturers and global demand for resins drops due to the coronavirus disease 2019 (COVID-19). Demand for resins, which are used to make plastics, is expected to decline as countries shut down their economies to fight COVID-19, said Joel Morales Jr., executive director of polyolefins for North America at IHS Markit, parent company of The Journal of Commerce. And the drop in US resin exports could be severe if oil prices remain low or continue to fall, he said. IHS Markit predicted in April that US resin exports would decline by 82,000 TEU (about 9 percent) in 2020 compared with last year, primarily due to a precipitous drop in global oil prices caused by downward pressure on demand from COVID-19 and a brief refusal by OPEC and Russia to cut production. US resin exports in 2020 totaled 872,995 TEU, according to PIERS, a sister company of The Journal of Commerce within IHS Markit. The impact of oil prices on US resins stems from their manufacture with low-cost shale gas produced in the Gulf Coast region using a byproduct, ethane, as a feedstock or raw material. High oil prices make US-made resin cheaper than that made by foreign producers using feed - stocks from oil. Oil prices have plummeted since the beginning of the year, with global benchmark Brent crude hitting a 20-year low of $24.74 on April 1. The oversupply will be mitigated some- what by an April 12 agreement forged by the United States, Russia, and Saudi Arabia in which 23 countries committed to collectively withhold- ing 9.7 million barrels of oil a day from global markets. IHS Markit's prediction of a loss of 82,000 TEU in resin exports in 2020 was made before the April 12 accord. If oil is priced below $20 a barrel, it "absolutely challenges and changes the equation in the near term of North American competitiveness," said Morales. In that scenario, much of the demand formerly served by the US resin sector would be picked up by Asian producers, he said. However, that could change if the price of oil rises as oil producers cut back on production, he said. IHS Markit expects oil to dip below $20 a barrel in May but to average over $30 a barrel for the year, which will still hurt the competitive edge of US resins produc - ers but not nearly to the same extent, Morales said. The oil price decline adds to the already uncertain outlook for US resin exports as global economies shut down during the fight against the corona- virus, which IHS Markit expects to reduce demand for resins. At the same time, the US resin sector faces a rise in Chinese production. And the US sector continues to feel the effects of a 25 percent tariff that China levied on resins in August 2018 as part of the trade war with the US, although an interim trade agreement reached in January offers hope that US export of resins to China could increase again. A decline in resin exports would be a swift turnaround for US producers, Receding wave US resin export boom fading on COVID-19 pressures By Hugh R. Morley 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 2015 2016 2017 2018 2019 TEU year -over -year % change US resin exports building — before COVID-19 Source: IHS Markit Notes: HS code 3901-09; 3911; 3926 © 2020 IHS Markit TEU year-over- year change TEU volume of US resin exports with year-over-year change

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