Crude extends losses, Asian equities mixed after Brexit

SINGAPORE (ICIS)–Crude oil prices continued to fall while shares of major petrochemical firms in Asia were mixed in early trade on Monday, amid uncertainties generated by UK’s decision to leave the EU.

At 10:22 GMT, August Brent was down by 16 cents/bbl at $48.25/bbl, while August WTI fell by 26 cents/bbl to $47.38/bbl.

Global crude benchmarks plunged on 24 June, with the British pound slumping 10% against the US dollar to levels not seen since 1985, after the British exit or “Brexit” campaign won in a UK referendum held on 23 June.

There were concerns that the financial market volatility that ensued after the UK vote will slow global growth.

In Japan, the benchmark Nikkei 225 stock market index, rebounded by 1.59% to 15,189.64, after shedding nearly 8% in the previous session.

Among Japanese chemical producers, Asahi Kasei Corp inched up 0.46%, while Mitsubishi Chemical Holdings was 0.07% higher. Mitsui Chemicals fell 0.84%, while JX Holdings declined 1.99%.

In South Korea, Lotte Chemical was up 0.56%, LG Chem was unchanged and SK Innovation increased 1.08%, while the benchmark KOSPI Index slipped 0.52% to 1,915.26.

In Hong Kong, Chinese major Sinopec Shanghai Petrochemical was 1.19% lower, while oil and gas giant PetroChina fell by 1.93%, as the Hang Seng Index fell 1.02% at 20,053.09.

In Malaysia, PETRONAS Chemicals Group was down 0.62%, while in Thailand, PTT Global Chemical slumped 3.38%.

In the Asian petrochemical markets, Brexit has had a muted impact so far.

Regional butadiene (BD) prices may see some slowing down in uptrend amid the uncertainty, market sources said.

On 24 June, spot BD rose $30-50/tonne week on week to $1,000/tonne CFR (cost and freight) northeast (NE) Asia on the back of strong Chinese buying interest.

“The BD price will not drop, but neither will it rally, due to uncertainty following Brexit,” a trader said.

“It is just the beginning of a new week, everyone is watching the stock market and crude oil. Let us wait and see,” another trader said.

Aftershocks from Brexit are likely to be felt in the Asian markets this week, Singapore-based UOB Global Economics & Markets Research said on Monday.

The Brexit vote wiped $2,100bn from global equity markets on 24 June, according to the research firm.

“There is likely to be more market volatility for now due to uncertainty as to how the UK negotiates its way out, and the potential for other members exiting the EU, though this should not be seen as a crisis,” it said.

A major concern is that the volatility seen in the market could damage investor confidence globally, UOB said.

“As long as the impact on UK’s economy is limited, local, and temporary, [the] negative effect on the global economy is expected to be minimal,” it added.

The most important implication of Brexit possibly lies in the longer term, according to Singapore-based DBS Group Research.

Many Chinese companies would consider moving their European headquarters to other countries if UK exits the EU, it said in a note on Monday.

Between 2010 and 2014, Chinese companies spent $53.7bn in direct investments in European countries. The UK is by far the biggest recipient, with a cumulative $11.4bn over that period, according to DBS.

“There is a heightened degree of uncertainty at present. Not only has [UK] Conservative Prime Minister David Cameron resigned following the outcome, but the Labour Party also appears to be in turmoil,” Commonwealth Bank of Australia said in a note.

“Further, David Cameron has announced that he will not evoke Article 50 [the EU exit trigger]. As a result, it will not be until at least October that we see the new Prime Minister begin the process to leave the EU,” it said.

Additional reporting by Helen Yan

Picture: Japanese shares tumble with the 225-issue Nikkei Stock Average falling on the Tokyo Stock Exchange market, after Britain voted to leave the European Union. (Aflo/REX/Shutterstock)