Whilst we eagerly await further news on a trade agreement with the EU, our concerns for a ‘no-deal Brexit’ for the UK plastics industry centre on logistics delays and pricing. In this blog, Plastribution discusses the possible impacts on polymer pricing.
The key impact of no trade deal with the EU27 will relate to the imposition of import duties on plastic raw materials imported from Europe. The UK schedule of Global Import Tariffs currently states that tariffs of 6% will apply to imports of all plastic raw materials with the exception of LLDPE.
We are aware that trade bodies are lobbying the government to suspend import tariffs for a set period to allow further trade negotiations and give industries more time to adapt. There has been no response from the government as yet.
Therefore, if no deal is agreed, any plastics raw materials (apart from LLDPE) arriving into the UK from the EU after the 31st December would be subject to 6% duty, irrespective of the date orders were placed or when they were shipped. This is of particular concern due to the current shipping delays which have been extensively reported. Please see our Hot Topic entitled Port Congestion.
The view from the markets is that leaving the EU without a trade deal would weaken the UK economy. This perceived weakness is expected to result in an immediate devaluation in the value of sterling versus both the Euro and the Dollar. The current forecasts are that Sterling could fall by as much as 6-10%.
This would translate immediately into higher Sterling prices for imports. In the event that a trade agreement is reached it is likely that Sterling would strengthen although many commentators predict an appreciation of only 1-2%.
Irrespective of the outcome of the trade negotiation, it is already known that the requirements for importing and exporting goods between the EU and UK will change. It will now be necessary to present import and export documentation at both borders.
Whilst it is known that the UK is likely to apply a flexible approach to importing goods and is allowing a window of up to 6 months post-import for clearances, it is unlikely that the EU will adopt a similar approach. There are therefore concerns that documentation checks on either side of the channel could cause significant supply chain disruption.
There is already evidence that the existing supply chain disruption is resulting in increased rates and that many shipping lines and haulage companies are applying surcharges to cover additional costs. This is likely to be exacerbated by the further disruption in January, and these increased costs are likely to be passed on to polymer prices. Fortunately, logistics form only a small part of the overall price of polymers and is likely to have a relatively minor impact on overall costs.
Supply and Demand
Our final concern is that the fear of export complexity and supply chain disruption will cause shortages of polymers in the UK market. Unfortunately, Brexit comes at a time when material supply to Europe is already restricted, as polymer producers preferentially supply other regions where netbacks are better.
We know from previous periods of restricted supply that polymer prices are highly susceptible to shortages and that rapid price inflation can ensue. Whilst these effects are likely to be temporary it is nevertheless a concern for UK plastics processors.
Regardless of the outcome, Plastribution are here to help.
We can support your business by:
- Securing specific stock for customers at a fixed price
- Increasing our general stock levels over critical periods
- Working with suppliers to ensure supply chains are robust and secure
- Working with you to plan flexible and intelligent deliveries