LONDON (ICIS)--Here is the Brexit reaction so far on Friday from the European chemical markets.
A polyethylene terephthalate (PET) buyer in Italy said Brexit was “a disaster” and will create a chain of events in the economy and forecast more countries to take the same path than the UK.
“In general for the markets it's a disaster…Movement of goods and closure of markets, stability of ex [exchange] rates – how can you sell to sterling buyers? It's a disaster,” the buyer said.
“If Holland leaves, then France and Italy will follow. PET prices are likely to go down but nobody will buy now and that’s right because we are in a moment of suspense and prices could go down further.”
A European ethylene glycol (EG) buyer said he was sad to see the UK leaving the EU but added, however, that the country should be “happy” that it will no longer be subject to the “Euro printing press that is destroying pensions [and] creating housing bubbles.”
Another player in the European EG market, a trader, said it was too early to conclude any outcome from the referendum but predicted it could create a domino effect on other EU members.
“It’s like a domino effect…Let the dust settle first and see what happens. All these contracts the UK has with other EU partners have to be revised. What will be the economic effect on all economies?” the EG trader said.
Other petrochemical market players reminded how “nothing will change for two years” at least, according to an olefins consumer in Germany, while others recognise the implications are totally unknown – it is the first time an EU member state has decided to leave the bloc.
“No one really knows the implications, personally I believe [it is] neither good for the UK nor good for Europe,” said another olefins consumer in Germany.
“There is the fear that the EU will make it tough for UK, to send a message to anyone else [thinking of leaving], but it is what it is now, the world will not go down, it will be complicated.
“But it will take two years to sort it [out] – both sides will do their best to reduce impact on the people,” it added.
Olefins contract talks have stalled for now because of the Brexit vote. A German seller said: “Didn’t think the UK would dare to do it. But maybe the EU is now perceiving that it needs to adapt and make themselves more attractive again – they lost a lot of followers [over the past years].”
A German olefins consumer said: “You shocked the world too much. I'm right now in China, people here are not too happy with the Brits vote having destroyed billions of dollars.”
A European benzene trader placed the timeframe for an actual Brexit at four years. “It will be at least four years before anything fundamentally changes,” the trader explained.
“Governments will come and go in that time. What is strange is that such a massive decision with a huge impact on the country has been taken with only 52% of support. It is hardly decisive.”
A source in the shipping industry attributed the Leave vote to a “backlash against austerity” but said it had been short-sighted: “A vote to an end of stability and prosperity.”
A Norwegian charterer said: “Brexit shook up the financial sector what with trading being a sensitive business. Reports say it’s had an effect on shipping. The trend has been softening after last week so definitely had an impact. A lot of optimism towards end of last week, but this drained away. A lot of trading is done in Geneva but it’s mainly done in London. The oil trades all go via London so financial centres are nervous.”
A Norway-based freight broker said that the “freight market is not crashing really. It takes some time so let’s see what happens in a couple of weeks.”
On the positive side, the expected fall in the pound sterling value is expected to benefit some of those in the UK who export abroad – their products will be cheaper overseas, although imports will be more expensive.
“With a strong business in the UK, our exports will be very competitive and imports will be reduced,” said a large polyolefins converter in the country.
In the fertilizers markets, the forecast is also negative as key product urea will become more expensive with what a trader expects to be falling pound sterling and euro values.
“It will have a negative effect, euro and pound is down making urea more expensive,” said a nitrogen fertilizer trader based in Switzerland.
“Demand is low anyway and now European buyers will wait to see what’s going on.”
An eastern European trader added. “I think impact on the [fertilizer] market will be very short-lived and limited. But social/economic and political chaos will stay for some time and will spread in Europe.”
A separate Switzerland-based fertilizers trader said that “the market is destroyed in the short term. The rupee has lost value so the [diammonium phosphate] DAP price will lower in India. The pound dropped 11%. Let’s see if they buy any DAP now”.
In the titanium dioxide (TiO2) sector, a paints/coatings buyer said: “In the long term I think what happened is very bad for the UK chemical industry. What is going to happen to Reach [EU's chemical regulation]? Companies will really rethink their position - do I really want to manufacture in the UK? A country cannot survive without manufacturing and this has become global.”
An acrylonitrile-butadiene-styrene (ABS) and polystyrene (PS) producer said: “Trade is going to be a bit awkward but we have done business with non-EU members many times.”
A PS distributor said: “It's gone mad. I am scared to
be honest, my heart sank when I saw the results. I was pretty
devastated. The FX rate will drop and that will affect
prices. The UK market is going to struggle.”
A PS producer, however, did not view the Brexit outcome as a disaster. “Today's reaction..I think everything will calm down very quickly. The UK will survive, the EU will survive, I don’t think it's a disaster.”
A buyer of the product said: “I was a voter for Brexit but still I was surprised. It’s more about democracy, life will continue. There is always going to be volatility. It will take a while to settle down. From a business perspective there’s going to be short volatility but we are not going to lose any business.”
An expandable polystyrene (EPS) producer said: “With UK leaving, industry will move out, economy will suffer.”
An EPS buyer said there would be medium-term pressure on raw material prices: “I think raw materials will see some pressure because of oil. It’s an unpredictable situation. We will see a lot of volatility in the next weeks or months.”
Another expandable polystyrene (EPS) producer said business with the UK would become more complex.“I would assume more and more companies will insist on euro-based pricing in our industry,” it added.
A maleic anhydride (MA) and phthalic anhydride (PA) trader in the UK described it as a “nightmare”.
“From a business point it is a nightmare - I had a customer just calling me trying to buy some MA and I imposed an increase based on the exchange rate, anything I buy now [from overseas] will cost me a lot, all suppliers have been looking at the cost, the pound will probably fall further.
“Importers to the UK will have to readjust their prices with their customers. Because of the damage this does to Europe I think it will be harder for British companies to export to Europe; the whole sentiment will be against us.”
An acrylonitrile (ACN) trader said: “Now we'll see July confusion because of the result….today it's a new era and the future is not so clear... I think it was too good for too many people so people look to make trouble”
A German polyvinyl chloride (PVC) producer said: “The British are very much common sense liberal in their economy and now we will have an EU which believes in governmental interference - it will be difficult without the British.”
A Europe-based acetone distributor said Brexit was the main topic of discussion on Friday morning: “What happened in England will probably keep us busy for some time.” The distributor added: “We are living in a highly connected world. Everybody is saying I have no plan B.”
A British source at the German office of French producer Proviron said the main concerns were for UK-based businesses.
“With the euro it’s not a big issue - it was weak around Grexit but improved. No big concerns for Europe, more for the UK, the weakness of the pound – they will be paying more for their products, if we had a big UK market we would be worried about competition.”
A major supplier of vinyl acetate monomer (VAM) said: “VAM customers in the UK for sure will see some increase in price compared with other European customers. It [higher cost in sterling terms] won't be absorbed by us but passed on to British customers.
A monoethylene glycol (MEG) trader said: “The euro is 3% down vs dollar - in theory this is 3% on the price which is getting on for €20/tonne…What was on offer at €630/tonne CIF [cost, insurance and freight] NEW [northwest Europe] yesterday, will mean €650/tonne today, because of the dollar.
“Everyone has had one eye on this vote. We got a rush of [UK] orders yesterday, as they were gambling on the vote being what it was. With the [sterling] exchange rate at 1.30 [versus the euro] yesterday, that is now 5% off in euro terms.”
Additional reporting by Jonathan Lopez, Linda Naylor, Caroline Murray, Nel Weddle, Mark Victory, Truong Mellor, Deepika Thapliyal, Vasiliki Parapouli, Yana Palagacheva, Chris Barker, Sarah Trinder, Sylvia Traganida, Luke Milner and Peter Gerrard