U.S. exports of ethylene, the petrochemical industry’s main building block, expanded fourfold during the first months of the pandemic showing that in spite of a trade war and Covid-19 some exports thrived, said Saad Rahim, chief economist at Trafigura.

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“Even with the pandemic we’ve seen a major, major step up in ethylene exports to China coming out of the U.S.,” said Rahim speaking during a Reuters Events Leadership Forum in late November.

US ethylene exports to China were 50,000 tonnes per month in March 2020 but they steadily climbed to well over 200,000 tonnes per month in June, Rahim said.

“This is one of the less talked parts of the trade war (with China), that even while some parts of the value chain have seen negative effects, others have seen quite a big jump,” he said.

Statistics on ethylene exports from the U.S. shared by Rahim, stretching from January 2019 until April 2020, show they had never exceeded 100,000 tonnes per month during that period.

Ethylene is the most produced petrochemical. Mostly it is polymerized into polyethylene for plastic bags and packaging. Other uses include ethylene oxide, ethylene glycols for polyester, PET bottles and antifreeze. It also helps produce polyvinyl chloride (PVC), as well as multiple other goods.

Trafigura is the world’s biggest non-ferrous commodities trader. It trades over 5.8 million barrels of oil daily.

U.S. trade deficit with China grew under Trump

The U.S. trade deficit both regarding the total with all countries as well as with China has not significantly contracted since (U.S. President Donald) Trump took office.

This is puzzling as the period coincided with a surge in U.S. crude oil exports due to the result of fracking technology developments during the past 15 years, Rahim said.

The U.S. trade deficit had been long associated with the need to be a crude oil importer but that changed with the development of fracking technologies within the past two decades. In the summer 2020 the U.S. crude exports hit a peak between 3.5-4 million barrels a day, Rahim said.

What the trade war between the U.S. and China did was to turn global growth in trade into a contraction.

The period “between 2016 and 2018 was the peak of global growth” in trade, Rahim said.

In the late part of 2018 and in 2019 “you can see how global trade really dropped off a cliff and started to contract,” Rahim said.

“It is very rare that you see global trade contract on a year-on-year basis,” he said. Just given the levels of economic and population growth, it usually takes place as a result of normal factors, he said.

The total U.S. trade balance with all countries, seasonally adjusted, for the first 10 months of 2020 was $1.18 trillion in exports compared with $1.90 trillion in imports for a $729.2 billion deficit, according to data from the U.S. census bureau updated on Dec. 2.

For the first 10 months of 2016 U.S. trade with all countries showed $1.20 trillion in exports compared to $1.81 trillion in imports for a net $606.8 billion trade deficit.

The U.S. exported to China in October 2020 $14.7 billion while it imported $44.8 billion, leading to a $30.1 billion trade deficit.

In October 2016 the U.S. exports to China were $12.6 billion while it imported $43.8 billion leading to a $31.2 billion trade deficit.

Trade war turns to technology competition

“We are at a phase were we are moving away from the trade wars of the Trump administration to what really does look like a long-term, multi-year, perhaps multi-decade strategic competition between the U.S. and China,” he said.

This competition would focus “not so much on trade of goods but much more around things like technology, currencies, a much broader, far reaching potentially strategic competition,” Rahim said.

As for Iran, if there is any deal struck with Teheran this could result in the quick return of the country’s oil production to its capacity estimated at about 3 million barrels per day.

In May 2018 Trump withdrew the U.S. from the Joint Comprehensive Plan of Action that had been reached in 2015 between Iran and five permanent members of the United Nations Security Council, including the U.S.

In August 2018 the Trump administration reinstated sanctions against Iran. It warned other countries that if they carried out business with Iran, they would not be able to continue doing business with the U.S.

This occurred as in September 2018 the U.S. overcame both Russia and Saudi Arabia and became the world’s biggest crude oil producer, due to the shale oil extraction advances.

The sanctions against Iran started on Nov. 5, 2018 but the U.S. granted exemptions to some countries for several months.

Iranian production plunged after the U.S. exemptions ended in May 2019. Iran has since been producing only a few hundred thousands barrels oil per day at most, Rahim said.

However, if the coming government of Joe Biden were to reach an agreement with Iran, chances are that Iran could quickly increase production back up to 3 million barrels per day, Rahim said.

“We have seen that in the past and it is reasonable to believe we can see that again,” he said.

Plunging supermajors

Another Covid-19 impact has been the plunging value of oil companies.

The combined market capitalization of “supermajors” BP, Chevron, ExxonMobil, Shell reached $1.02 trillion in 2017 but fell to $470 billion in 2020.

“This is a very different world from where we were even a couple of years ago, let alone the time of the $100 oil barrel in 2013-2014,” Rahim said.

The combined market cap of these companies “is just about equal to where (electric auto producer) Tesla is,” he said.

“The industry looks beheaded and I guess it’s an open question going forward,” he added.

By Renzo Pipoli