Impact of suspension of ECFA tariff reduction on THF and PTMEG

According to the announcement of the State Council Tariff Commission on May 30, starting from June 15, 2024, for 134 imported products originating from Taiwan, including lubricating oil base oils, the preferential tariff rates under the Cross-Strait Economic Cooperation Framework Agreement will be suspended, and current relevant regulations will be enforced.

The cancellation of ECFA tariff reductions this time involves chemical intermediates in the spandex industry chain such as Tetrahydrofuran (THF, HS code 29391100) and Poly Tetramethylene Ether Glycol (PTMEG, HS code 39072910), as well as raw materials and equipment parts for multiple industries including chemical fiber and printing and dyeing.

Based on the tariff rates applied to the products, the suspension of tariff reductions will significantly increase the import costs of PTMEG and THF, with the provisional tariff rate for PTMEG at 3% and the most favored nation tariff rate for THF at 6%.

Below are the import situations of PTMEG and THF in recent years.

PTMEG

Since 2022, the import and export trade of PTMEG has shifted to a net export situation, with a significant decrease in import volume. The import share from China's Taiwan has seen a substantial decline in 2024. From 2021 to 2023, the import volume from China's Taiwan accounted for nearly 80% of the total imports, having a high proportion. The import volume from China's Taiwan from January to April 2022 was approximately 4252 tons, accounting for around 39% of the total imports.

Looking at the current supply-demand situation of PTMEG, Chinese mainland market is shifting towards oversupply in 2024, leading to low product prices and strong competitiveness. Comparatively, the product prices from Taiwan are still significantly higher than those in the mainland market. Due to price differentials and weak downstream cost transmission capability, the import volume from China's Taiwan is expected to gradually decrease from the fourth quarter of 2024. The suspension of the tariff reductions will further increase import costs, causing enterprises sensitive to costs to reduce import volumes further.

THF

The trend in the import and export quantity of THF shows a shift to a net export market starting from 2021. The distribution of supply capacity and demand region conditions have led to a strong performance in THF's export volume over the past three years, with a noticeable increase in export volume and a significant decrease in import volume. The import volume from January to April 2024 was approximately 1080 tons.

The majority of THF's import source is from China's Taiwan, with over 90% of THF imports in 2022-2023 coming from Taiwan. The cancellation of tariff reductions is expected to have a significant impact on the import volume.