Europe highlights 2016: The year no-one predicted (part 2)

The first part of ‘Europe highlights 2016: The year no-one predicted’ was published on 29 December. Click here to read it.

A UK newspaper reports on Donald Trump’s victory
Source: Dinendra Haria/REX/Shutterstock

By Jonathan Lopez

LONDON (ICIS)–Europe was shaken in 2016 by social and political earthquakes for which we will only realise the full effects in years, perhaps decades, as the European chemical industry embraced for a “different world” following Donald Trump’s victory in the US presidential election.

JULY
Another eventful month, which started however with stock markets in Europe recovering part of the losses posted after the Brexit vote, emboldening those in the UK who had supported the departure.

However, voices across Europe started unveiling the conditions required for the UK to continue having access to the European single market, where most of its exports are directed. The French chemical trade group, for instance, told ICIS the UK should apply Reach if it wanted to trade chemicals with the EU.

But July will not be remembered by the aftermath of Brexit as the news cycle shifted quickly. On 14 July, France’s national day, a terrorist driving a lorry ploughed into crowds watching a fireworks display in Nice by the Mediterranean sea.

He left 86 people dead and 434 injured. France, in the midst of a social, political and economic crisis, extended the state of emergency declared in November 2015 after another terror attack in Paris which left 130 dead and 368 injured.

The Nice attack soon took a back seat in the media however when the day after, on 15 July, key EU ally Turkey suffered a coup d’état. In events still unfolding as the Turkish president continues a crackdown against those he considers responsible, more than 100,000 civil servants, army members and intellectuals have been arrested or fired from their posts.

The failed coup attempt shook up the country’s petrochemicals industry. Many companies have struggled to recover from the events, with both demand and prices remaining low, and exports to Turkey seeking out better netbacks in Asia and other regions.

The tumultuous year was completed by a slide in the lira to a record low against the US dollar, with no immediate signs of recovery, and the national statistical agency saying Turkey had entered negative growth territory in the quarter July-September.

Meanwhile in Syria, Russia’s military helped the country’s president regain formerly lost areas, with Aleppo finally falling into the government hands by December.

AUGUST
The UK’s Bank of England (BoE) unleashed on 4 August a £170bn stimulus package to try fend off the expected downturn after Brexit, although those supporting departure from the EU continued accusing the bank of scaremongering and of creating a negative vicious circle which feeds pessimism in the economy.

In August we also heard German industrial gases major Linde was in talks with US peer Praxair over a potential merger. Although it took a few months and a CEO, Linde finally said in December it had agreed the terms for a merger with the US firm.

During the month, observers of polyethylene terephthalate (PET) said the low prices the product had had to endure during the course of the year might have bottomed out, after June saw low prices when traditionally the summer season in the northern hemisphere boosts that product’s prospects.

By December, prices had indeed recovered, but probably not by as much as producers would have liked.

SEPTEMBER
Bayer’s initial $62bn offer to acquire Monsanto ended up being $66bn by September, when the US firm’s shareholders agreed to the deal.

This was also the month when crude oil producers around the world started recognising that as long as the oversupply stayed put, selling prices would remain low, biting their national budgets in many cases and putting pressure on future projects expansions.

Initial thoughts to start fixing their problem of low prices crystallised in November and December, when OPEC members agreed to cut oil output, a deal extended later on to other 11 non-OPEC countries. The Internatinal Energy Agency (IEA) would pour cold water on this in November.

September also saw German chemical firm LANXESS placing a $2.5bn offer to acquire US-based Chemtura, a producer of high-quality flame retardants and lubricant additives.

That move, among others, gained LANXESS’ CEO, Matthias Zachert, the top spot in the ICIS Top 40 Power Players, a list of the most influential chemical CEOs around the world, published in November.

OCTOBER
BASF’s Ludwigshafen in Germany suffered the most serious accident in decades on 17 October, which left three dead and several injured. As the accident caused by an explosion only affected the site’s port overlooking the River Rhine, logistical operations were affected at first but the company managed to keep the disruption to a minimum.

The most serious accident in the chemical industry in years, the incident left questions still unanswered of how it could have happened, considering the supposedly tight health and safety tests the site has to pass every year.

At the time, chemical analysts were divided about the potential implication of the accident on the company’s financials, with some suggesting it could bite as much as between 1% and 3% from BASF fourth-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA), although others were more circumspect, arguing production would not be affected.

How the accident affected fourth-quarter financial will be unveiled on 24 February 2017, when the company presents its annual results.

NOVEMBER
The month European chemicals said they were bracing for “a different world” after outsider Donald Trump won the US presidential elections.

Following the same pattern as Brexit, large swaths of voters in industrial regions decided to abandon their traditional house – the Democratic Party – and opted for a billionaire who was promising to overhaul in laws and ways of approaching business culture in order to ‘Make America great again’ by producing and hiring American products and workers as a maximum economic policy.

While the line won approval from a lot of working class voters, the appointments Trump has made to his administration have revealed the greatest number of billionaires and bankers a US government has ever seen.

Trump is not yet at the White House and the way his presidency develops in 2017 will be one of the most fascinating aspects of the new year.

Chemical companies, the paradigm of an export-intensive sector, are concerned the protectionist rhetoric heard during the campaign will translate into reality.

Analysts in Europe have started pointing at the growing wealth gap between those at the top and those at the bottom as the fundamental reason for the Brexit and Trump votes, a problem the western establishments will need to start looking at if they intend to solve the real problems of their time.

Back at home, European manufacturing was in November at its highest point since January 2014, fuelling demand for chemicals, although Cefic painted later in December a sombre picture about stagnant volumes during the course of 2016.

In Spain, without a government after two inconclusive elections in December 2015 and June 2016, a minority cabinet led by Mariano Rajoy was finally formed in November, which pleased the Spanish chemical trade group.

However, Spaniards away from the booming metropolitan areas – as the country recovers from its worse crisis since the 1940s following the Civil War – continue to see unemployment at record highs and stagnant or decreasing salaries. Social discontent continues to be on the rise.

November was also the month when more than 200 countries agreed on the terms to implement the Paris Accord from 2015 to curb CO2 emissions to stop the planet’s temperature rising.  

While delegates gathered in Marrakech to finalise details, however, there were widespread fears the new president in the US would overturn the accords as he intends exploit fossil fuels to make possible his promised industrial revolution.

Perhaps a sign of how climate change is already with us is the River Rhine in Germany, a key petrochemical transport route in Europe. Although normally at low water levels in the autumn, by 21 December the federal and local river authorities told ICIS water levels were unusually low for that time of the year.

DECEMBER
Just one day after a German economic research institute explained how the economy had ended the year in a “festive mood”, another lorry was used in a terror attack on a Berlin Christmas market, killing 12 and leaving dozens injured. 

Terrorism has become recurrent in Europe, and although most citizens understand the threat is difficult to fend off, it seems many feel the proposals from far-right groups – increasingly anti-Muslim and nationalist – are the way forward. How Europe deals with this will be a main feature of 2017.

Elsewhere in Italy, a weak prime minister who had proposed constitutional reforms and linked his victory in a nation-wide referendum to his post, was forced to quit after losing. 

Markets, however, were unfazed by his resignation, although talk about the troubled Italian banking system persisted and by the end of the year the oldest bank in the world and the one with the largest amount of bad loans, Monte dei Paschi di Siena, was on the brink of a bailout from the Italian Treasury.

December also left the EU deciding how its Emissions Trading System (ETS) will look like from 2020 onwards, with the unusual feature of the German chemical trade group VCI and the EU wider group Cefic disagreeing on the fundamentals.

The IEA also said in December if crude oil producing countries keep their promises for output cuts, the markets might move into deficit by June 2017.

Additional reporting by Matt Tudball, Pavle Popovic and Nel Weddle