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Chemical execs readjust to meet post-Brexit challenges

July 1, 2016
Chemical Value Chain

As the fallout continues from the United Kingdom’s referendum vote to leave the European Union, chemical industry executives say they believe the sector can draw on its underlying strengths and adapt to the uncertain times ahead.

The public voted in the referendum last week 52% to 48% for Britain to exit the European Union, a process commonly known as Brexit. A survey earlier this year by the United Kingdom’s Chemical Industries Association (CIA) showed almost unanimous support among CIA members for the country to remain a member of the European Union.

The referendum result “is tough for the industry, but we have to make the best of it. We are readjusting,” says Tom Crotty, director at Ineos Group Ltd and president of CIA. “Ineos said in advance of the vote that as a company we could manage our business whatever the result. This has not changed. We already run businesses outside the European Union,” Crotty says.

But Brexit will likely be a much tougher call for small and medium-size enterprises (SMEs) operating in the UK chemical industry despite the short-term boost to competitiveness from the value of the pound sterling, which fell to its lowest against the dollar since 1985 in the aftermath of the referendum. “Some UK-based SMEs are massively reliant on exports to the rest of Europe,” Crotty says. “They’ll see a short-term boom from the currency depreciation, but it’s only a matter of time until higher costs come through [from more expensive imports].”

Leading UK-based chemical manufacturers are optimistic that they can weather the storm. The board of Johnson Matthey (London) says in a statement it “believes that Britain exiting the EU will not have a long-term material impact on the company, and we look forward to executing our previously outlined strategy for the group.”

However, some EU-based chemical firms say they are dismayed by the referendum result. “I think there will be a couple of years now of real difficult soul-searching to understand what has just been voted on,” says Patrick Thomas, CEO at Covestro AG (Leverkusen, Germany). Nevertheless, Brexit will likely only limitedly impact Covestro, Thomas says. “We have customers in the UK, but it is not a significant market in terms of our global exposure. We have no manufacturing in the UK,” he says.

The United Kingdom will not formally exit for at least two years after the country notifies the European Union of its intention by triggering Article 50 of the Lisbon Treaty, the constitutional basis of the European Union. Chemical companies are planning to use the intervening period to prepare themselves as effectively as possible for Brexit. Tom Bowtell, chief executive of the British Coatings Federation (BCF; Leatherhead, United Kingdom) says BCF “will be working closely with our European federation CEPE and our members to ensure the best possible outcome for the coatings industry, both in the UK and in Europe.” The United Kingdom is a net exporter of coatings, paints, and inks, and Europe accounts for 60% of BCF members’ combined exports, Bowtell says.

Brexit may also bring opportunities for the coatings industry. “Given the importance of Europe to our members, we are concerned about the economic impact of Brexit,” Bowtell says. “However, there may also be opportunities, for example an independent UK could draw up more favorable trade agreements with other countries with which our members have not typically traded. We now have to look to the future, and we are confident that an important, dynamic, and innovative industry such as ours can prosper in this new environment.”

IHS slashed its economic growth forecasts for the United Kingdom immediately after the referendum result. It has also cut its estimates for the energy sector on the expected weaker economic activity. A preliminary IHS analysis of France, Germany, Italy, the Netherlands, Spain, and the United Kingdom shows that the combined demand for refined products in these countries is likely to be lower by more than 100,000 barrels per day (b/d), or roughly 1%, through 2018 compared with prereferendum forecasts. The United Kingdom’s forecast demand for refined products has been reduced the most severely, about 2%, or 30,000 b/d. IHS also expects electricity and gas demand in the European Union will be 0.5% lower in 2017 than earlier forecasts.

By Ian Young

Source: Chemical Week

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