Pre-Brexit stockpiling raises risks for chems storage

Tom Brown

23-Jan-2019

LONDON (ICIS)–The UK chemicals industry is increasingly stockpiling reserves in anticipation of any disruption brought about by the country’s upcoming departure from the EU is increasing the risk of storage shortages, according to sources.

Fears of supply chain disruption have led many producers and distributors to bolster reserves of key materials, but available storage capacity is becoming limited in parts of the country.

“There certainly is a shortage of storage,” said one distribution industry source. “[It is] not impacting our business yet though, and we have taken up some additional pallet spaces as part of our Brexit preparations.”

“We are trying to buy a little bit more in January,” said a polyethylene (PE) buyer. “As preparations for Brexit we’re already building up stock.”

The issue is particularly pronounced for more heavily-regulated hazardous chemicals.

Materials that fall under the remit of the Control of Major Accident Hazards (COMAH) regulations – updated by the UK government in 2015 to comply with the EU’s Seveso III dangerous substances legislation – have tighter controls over the conditions they can be stored in.

COMAH-compliant storage capacity is likely to continue to be tighter than general storage as the theoretical 29 March 2019 date for the UK’s departure from the EU draws closer.

“On stockpiling we are aware both of distributor members doing so – but within the constraints of COMAH and Land Use Planning limitations, and logistics service providers seeing more demand and a shortage of supply because they too can be limited for their COMAH sites,” Peter Newport, CEO of distributor trade group the Chemical Business Association (CBA).

“CBA is not aware of any plans from government to provide for flexibility under the various regulations that limit sites inventories,” he added.

“I know from speaking to one of our suppliers in particular that lack of available COMAH/Seveso approved storage for toxic & flammable chemicals is now starting to get short around the time of Brexit,” added a polymer manufacturing sector source.

The issue of storage space availability extends beyond the chemicals sector, with buyers across all industries looking to safeguard supplies in anticipation of any disruption, and many key sectors including food retailers and hospitals advised by the government to build up stocks.

According to a member survey carried out in December 2018 by the United Kingdom Warehousing Association (UKWA), 85% of respondents had received Brexit related enquiries, and 75% reported that storage capacity is now filled and they are unable to take on any new business.

Storage space scarcity is becoming increasingly acute as the March leaving date draws closer, particularly near high-density population areas, according to UKWA CEO Peter Ward.

“Any kind of interruption to the supply chain is going to mean a call for a need for more warehousing in general, although that is going to present some challenges,” he said.

“The short-term situation is starting to become somewhat critical as people start to plan for that potential interruption to their supply chains,” he added.

UK industry preparation for Brexit has remained stifled by the lack of clarity over what the UK’s post-divorce relationship will be with the EU, to the extent where it remains to be seen whether the March departure date will hold, or if it will be pushed back further.

The tortuous progress of Brexit negotiations in UK parliament and in Brussels mean that chemicals players have been unable to take many concrete steps to prepare for the impact of a no-deal Brexit, which would likely see the re-imposition of tariffs on goods entering or leaving the country to the EU.

“We will bring materials in that we can’t get in UK, but … how much money can you tie up in this?” said one seller.

“We are putting Brexit clauses in our agreements,” said a UK-based PE seller.

In the meantime, the increase in order activity has driven UK demand for some materials up to peak demand levels, despite the start of the year being a traditionally quiet period for many end markets.

“Suppliers are increasing their stocks of MEA [mono-ethanolamines] in the UK so the aggregate demand on MEA production / European stocks is above high season level,” said a buyer in the wood treatment sector.

Demand, and the weakness of UK sterling against the euro, has also driven up pricing in some markets, with pricing in the ethanol market running at a premium for the country since the third quarter of 2018, and one source noting higher UK contract pricing at the end of the year for first-quarter contract business.

“The problem with Brexit is that if it doesn’t work out, a lot of product will be stuck at the ports,” added a plasticizers sector consumer.

Other sources expressed scepticism over the level of market concern about the process.

“The sun will still shine the morning after Brexit,” said a European chemicals buyer.

Pictured: Delays at the UK’s port of Dover, archive image from 2016; sources in the European petrochemicals industry fear a ‘no-deal Brexit’ could cause backlogs at ports
Source: Invicta Kent Media/REX/Shutterstock

Focus article by Tom Brown

Additional reporting by Katherine Sale, Heidi Finch, Clare Pennington, Linda Naylor and Jane Massingham

Click here to view latest news and resources on the ICIS Brexit topic page

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?