Petchem market weighs impact of UK referendum as voting begins

Author: Katherine Sale

2016/06/23

A polling station in Tottenham, North London on 23 June. Source: RexfeaturesLONDON (ICIS)--Tension in the European petrochemical industry is palpable with the vote on Thursday on whether the UK will remain part of the European Union, sources said.

It has been a stormy campaign, mirrored by the stormy weather hitting France and the UK in the early hours before Thursday’s vote.  

As many woke to the travel chaos it allowed time to reflect on the importance of the vote, in the realisation that tomorrow really could be a very different day.

This is not just an issue that has impacted UK citizens or politicians across Europe, with the petrochemical industry being vocal in the lead up to the vote on what could happen at this pivotal time for Europe.

Demand has been impacted in a number of markets, with some players hesitant to commit to orders given the current uncertainty.

One UK polyacetal (POM) distributor said its demand has been impacted across all polymers because of the referendum.

A polycarbonate player highlighted the fears for some Europe businesses saying: “Brexit for Belgium could cost 12,000 jobs. A lot of Belgian companies export to UK. They are afraid of tariffs.”

With the Leave and Remain camps being neck-and-neck for much of the lead-up to the vote, this had added to the doubt, resulting in financial volatility and hesitation in a number of markets.  

A polymethyl methacrylate (PMMA) distributor, based in the UK, said this has resulted in a delay in its third-quarter contract negotiations, with it being unable to make progress with partners until the referendum deadlock is resolved.

While some players have questioned what the actual impact would be on trade, others suggested the short-term fluctuations in the exchange rate could impact business.

“Too many permutations of the result of a Brexit. There is also the fact that two years of talks will follow were Brexit be the outcome,” was the view of one UK methyl methacrylate (MMA) buyer.

The idea of a compromise on behalf of the EU was echoed by one polyethylene terephthalate (PET) seller, who said: “The EU can't allow Britain to leave. There will be some sort of compromise.”

However, others focussed on fears over the exchange rate and what it would mean for current trade between the UK and Europe.

“If Britain exits, the euro will drop and the cost structure will be different, and prices will go up. The US dollar will be stronger and raw mat [material] costs will go up,” according to one PET seller.

After reading a recent poll that put the Remain vote ahead, one MMA buyer said: “Assuming this is correct, the impact for us as a primarily UK business as far as bulk MMA goes, will be slightly positive, as we purchase MMA in EUR and as a remain vote should see the GBP strengthen vs. the EUR.”

However, the buyer went onto add: “As an exporting business, much of this positive benefit on currency will then be off-set by us exporting finished products, produced using MMA, to the Continent where any strengthening in GBP will result in our finished goods being more expensive vs. EU-based competitors.”

The Commonwealth Bank of Australia described Thursday’s vote as “a pivotal point in the nation’s political and economic landscape.”

As millions across the UK flock to the polling stations it is not yet known if Europe will wake tomorrow united. 

The political and economic ramifications are all dependent on which way the UK turns, with demand, pricing and the exchange rate potentially being affected based on the outcome.

Let the voting commence.   

Focus article by Katherine Sweeney

Additional reporting by Caroline Murray, Peter Gerrard and Mark Victory

Picture: A polling station in north London on Thursday. Dinendra Haria/REX/Shutterstock