Shortages lead to panic buying as hard Brexit looms

Author: Clare Pennington

2018/10/25

UK petrochemicals and fuel buyers are trying to stockpile gasoline components, polymers and glycerine in preparation for a potential hard Brexit, the possibility the country may leave the EU in 2019 without having reached a trade agreement with the bloc.

However, some products are in shorter supply and that is making it difficult to secure additional materials, leading to what is described as “panic buying”. The UK is a net importer of polymers, with many products like engineering plastics feeding into the country’s strong automotive and housing industries.

Reliance on imported petroleum products has also soared in the last decade, with the UK importing 9.5m tonnes more than it exported in petroleum products in 2015, according to government statistics.

SHORT SUPPLY

However, EU producers and UK buyers are struggling to supply and stockpile materials where volumes are relatively short, like plastics acrylonitrile-butadiene-styrene (ABS), polystyrene (PS) and polybutylene terephthalate (PBT).

One UK port warehouse proprietor described the change they observed this month as “panic buying”, but said that availability of some products like PBT is still limited in Europe, meaning that importers cannot secure as much material as they would like to.

“[What’s available is] being absorbed by a more attractive Asian market,” said one PBT source. There is more through traffic for PS, although there are also caps on volumes available.

Some participants in the glycerine market – which feeds into a wide range of industries – are also building up stock to mitigate Brexit-related supply issues. Vehicle fuel players have also imported additional volumes in recent months.

“If you are in the fuel business you should be stockpiling every component you can,” said one supply source.

In the ethanol market, the UK’s only two producing plants, Vivergo and Ensus, are set for closure or a “pause in production”, respectively. This will add pressure to what is already a “structurally short” domestic market, said one source.

Used to make components like vehicle sheeting, cogwheels, car interiors, pipes and windowpanes, the plastics industry relies heavily on automotive and housing manufacturers to buy their products. Occasionally, UK polymer imports can come from Asian countries when arbitrage is open, with other suppliers located in the Middle East.

IMPACT ON IMPORTS

Nevertheless, the bulk of polymers imports into the UK come from EU countries with important production capacities located in Germany, France, Belgium or Spain, among others.

The result, UK buyers said, is that costs could go up for imports both from the EU and from other international trading partners in the event of a hard Brexit.

Suppliers are worried that this could harm UK demand from car manufacturers in the longer term. The warning came as the UK government announced 13 consecutive months of increased exports to help reduce the country’s trade deficit.

“There is a lot to be worked out on that front, though,” said one buyer, adding that a seismic shift in trade relations makes predicting future trade balances for the UK “extremely difficult”.

If buying costs increase, said a source, exports that rely on polymer imports could become less competitive outside the UK.

£5BN TARIFF THREAT

The UK’s Society of Motor Manufacturers & Traders (SMMT) warned in September that a potential £5bn tariff threat to the automotive industry in the event of a hard Brexit could be “just tip of iceberg” for the automobile sector.

Following an enquiry from ICIS about the potential consequences of a hard Brexit, the SMMT declined to comment.

Its EU-wide counterpart the ACEA also declined to comment, as did automobile majors BMW and Toyota, both with important production facilities in the UK.

A UK ethanol source said that the UK could end up importing fuel ethanol from the US in the event of a hard Brexit where tariffs apply to import EU material. Under that scenario, lower US fuel ethanol prices would also likely make a return to domestic fuel ethanol production “near impossible”. For now, industry players say they can only take a short-term approach to the challenges ahead. “Customers are approaching us and asking: ‘Do you see any problems to bring stuff into the UK [around Brexit]?’” according to one Germany-based plastics producer, who felt “fortunate” that most of its clients are based in mainland Europe.

“But there is not a lot you can do despite warning customers that they should find somewhere to stock in the UK,” it added.

“We tell our customers we cannot fully secure timely deliveries of materials around a hard Brexit, so we advise them to try and build some stock in the UK.”

Sources from the UK’s ports and rail warehousing sectors added that rail and trucking networks are expected to be most affected when the UK leaves the EU.

Ports, meanwhile, have infrastructure in place that can more readily deal with overnight international tariff shifts and other potential import challenges, they added.

The UK government is reportedly preparing to hire a flotilla of ships to bring in food and medicines in the event of a “no deal” Brexit. ■

Additional reporting by Samantha Wright