UK chems sentiment hit by pandemic, ‘increasing likelihood’ of no-deal Brexit

Author: Jonathan Lopez

2020/06/22

LONDON (ICIS)--The pandemic-induced lockdown and an ‘increasing likelihood” the UK will not reach an exit agreement with the EU have turned indicators sour for the country’s chemicals industry, according to the chemicals distributors trade group CBA.

CBA published on Monday its quarterly Supply Chain Survey with all indicators turning sharply negative compared with the last one published in March.

Based on responses from 58 companies active in the UK chemicals distribution sector, expectations for order books, sales, and employment have all taken a hit since the country entered a partial lockdown at the end of March to contain the pandemic, from which it is currently emerging.

“Emerging from the Covid-19 lockdown, an imminent and severe economic downturn, plus the increasing likelihood of a No Deal Brexit represents a perfect storm for the UK’s chemical supply chain and are beginning to be reflected in our survey,” said CBA’s CEO Peter Newport in a statement.

The UK officially left the 28-country EU on 31 January, but it remains in a transition period until the end of the year in which the country is negotiating a trade deal with the EU27.

Speaking to ICIS, Newport said reaching a deal is turning increasingly unlikely hearing statements from both sides in past weeks, which have pointed to very different views on key issues for the future relationship.

“There have been elements of frustration in statements made by both sides’ chief negotiators. There are still sticking points in which they are not close to reaching any resolution,” he said.

The end of June was the date which the UK would consider applying for an extension to the transition period, which it has not done yet.

CBA, as well as its UK and EU peers CIA and Cefic, respectively, have lobbied for the UK to retain free trade of goods or freedom of movement for workers post-Brexit, aspects they consider key for the chemicals industry to thrive.

Asked whether the trade groups had failed to achieve all targets, Newport said if that was the final outcome it would occur because Brexit has been dealt with as a “political issue, not as a common sense issue.”

With a no-deal Brexit looming, and the pandemic and its induced recession set to hit the UK economy hard, prospects for the country’s chemicals industry have turned sour in the last two months, he said.

“Up to April, the UK chemicals industry was having a good run. But the confluence of these three things – the pandemic effects taken longer than expected to resolve, the induced recession, and an imminent Brexit – doesn’t give us a lot of confidence going forward,” he concluded.

FIRMS PESSIMISTIC
While the CBA’s survey was conducted in mid-June, when the UK was already exiting the lockdown and downstream industries came back to work, sentiment among chemicals corporates was very negative.

Asked about order books, the balance stood at -33%, an “adverse swing of 66%” compared with the March survey, when the balance stood at a positive 33%.

“Current sales volumes have turned sharply negative at -31%. In March, members' companies reported a positive balance of +32%. This represents a significant decline of 63% in business sentiment,” said CBA.

The outlook for the next three months remains positive at 9%; in March it was 5%.

However, in a worrying sign for both the industry and the wider economy, employment is set to fall, according to the respondents.

“For the first time, in the eight years of these surveys, member companies have reported a negative trend in employment of -8%, a reflection of the impact of Covid-19 and the future uncertainty in levels of business activity,” said the CBA.

A fall in crude oil prices gave respondents the only bright spot amid the pessimism, although the forecast for the near term was also downbeat.

Current sales margins “are now barely positive” at 4% but still slightly higher than March’s when they were neutral (0%).

“The outlook for future sales margins remains negative at -7%, the same outcome as our last survey in March 2020,” concluded CBA.

The survey was conducted on 8-19 June.

Front page picture: The UK's Prime Minister in talks with the European Commission president on 15 June
Source: Andrew Parsons/Downing Street handout/EPA-EFE/Shutterstock

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