Europe chems stocks slump on US-China trade war fears, Merkel strife

Author: Tom Brown


LONDON (ICIS)--European chemicals stocks slumped on Tuesday in line with declines on local and Asia bourses in response to fears of the impact of revived trade war measures between the US and China.

The prospect of retaliatory measures by China against a potential $200bn-worth of new tariffs levied by the US against the country on over 1,100 products, including numerous chemicals and petrochemicals, sent share prices for European chemicals players slumping in early trading.

The prospect of retaliatory trade tariffs between the two global superpowers first hit markets in April, with China announcing $48bn-worth of tariffs against a mooted $50bn of tariffs from the US.

Tensions eased late in the following month when it seemed that a cautious detente had been agreed when the two countries issued a joint statement pledging to work together on a more balanced trading relationship and intensified scrutiny on intellectual property violations in China.

US President Donald Trump announced late last week that the country would move forward with tariffs against China, citing unfair trade practices and intellectual property theft.

Whereas the US’ initial list of tariffed products earlier this year featured few chemical or petrochemical materials, the revised list includes lubricating oils, polyethylene, polypropylene, styrenes, vinyl chlorides, polycarbonates and a raft of other materials.

The new list puts the US chemicals sector “at the front line” of the accelerating conflict between the two countries, according to the American Chemistry Council (ACC).

The Dow Jones Euro Stoxx chemicals index fell by over 1% in the early hours of trading on Tuesday, with the most significant slumps in individual share performance felt by the companies with the greatest international exposure, particularly in China.

Germany’s BASF and Covestro saw stock price erosion of over 1.5% compared to Monday’s close, while Bayer, Air Liquide, LANXESS and Bayer all posted substantial declines.

The UK’s FTSE 100, Germany’s DAX, and France’s CAC 40 indices were all trading down as of 11:45 London time.

Global trade fears were compounded by almost unprecedented friction at the recent G7 summit, which saw Trump decline to sign a joint communique and leave early, after fulminating about trade imbalances between the US and its partner countries in the political alliance.

Markets were also hit by growing tensions in Germany, where Chancellor Angela Merkel is facing a rebellion from factions of the country’s coalition government over immigration.

Horst Seehofer, the head of coalition party the Christian Social Union, has demanded concessions on migration where agreements are reached with other EU countries to return migrants to the country they were first registered in the 28-country union, or to begin turning refugees away from the German border.

Merkel has promised clarity by July, but the issue is likely to be a protracted one for the embattled Chancellor, according to analysts at Germany’s Deutsche Bank.

“Setting up of such controls by Seehofer would leave Merkel with only two options, either she would go along with Seehofer’s more restrictive policy approach – a loss of face she might not survive for very long – or she would have to sack him, which would almost certainly cause the CSU to leave the coalition and ultimately result in a collapse of the [coalition government],” said London-based Jim Reid, head of global fundamental credit strategy at the bank.

“Our colleagues [in Germany] consider the latter option very unlikely and see a further muddling through with no clear winner but a substantially damaged Merkel as the most likely outcome. Therefore, they expect this conflict to linger around up until the Bavarian elections on 14 October,” he added.

The row also weakens Merkel domestically and on the European stage, Reid added, pointing to a further fraying of the western liberal order.

Pictured: Merkel and Trump at the recent G7 summit in Canada
Source: Canadian Press/REX/Shutterstock


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