The weak pound is causing misery for those holidaying abroad but is also creating frustrations for the UK polymer industry, as the weakness of Sterling is causing upward pressure on UK polymer prices.
The ‘hard Brexit’ rhetoric since Boris Johnson became Prime Minister has caused the pound to fall by 1.9% against the Euro and 2.4% against the dollar since the day before he became PM. The Pound has now slipped to below 1.09 against the Euro, its lowest level for two years.
As we have discussed in many of our articles on Brexit and polymer pricing, the UK polymer market is heavily reliant on imports. The few domestic producers do not have enough capacity or a wide enough product range to meet all of the needs of UK plastics manufacturers, and some thermoplastic materials are not produced in the UK at all. This means that the import of thermoplastics raw materials is essential to UK processors.
And this reliance on imports means that the value of Sterling has a big impact on polymer prices.
The Euro is particularly significant. As much as 80% of our plastic raw material imports come from the EU, although this proportion is changing as we see more imports from the US of polyethylene products based on shale gas.
What is particularly galling for UK plastics processors is that the devaluation of Sterling will put upward price pressure on polymer prices at a time when prices are softening. Traditionally the summer months have always been a good time for polymer processors as typically demand is slack and producers often try to incentivise buyers to place orders. This has been particularly true over the past few months as market demand has been very quiet. Suppliers have therefore, been offering price reductions to try to stimulate demand and normalise stocks.
In the UK, many companies had built stocks ahead of the March 31st Brexit deadline and have therefore relied upon their own inventories of plastics raw materials and finished goods, limiting current demands.
Increased cargoes of product from capacity expansions in the US has also put pricing under pressure.
So, in this climate of weak demand and a falling market, it will be very difficult for UK polymer processors to accept rising polymer prices. The question is whether polymer producers will be prepared to offer further discounts to offset the currency devaluation and stabilise pricing for UK processors.
The initial announcements are that polyolefin polymer producers are seeking to follow the ethylene and propylene feedstock announcements, applying small increases in Euro terms to PE pricing and offering roll overpricing on PP. Whether producers are willing to offer concessions to the UK to try to stimulate demand and is yet to be seen and will no doubt depend on demand levels elsewhere.
Probably the best hope for UK processors is that the trend of weak pricing continues and that further reductions in Euro terms are enough to offset the Sterling devaluation. This is perhaps more likely with the product families where there is surplus supply due to capacity expansions in the US. For processors of polymers where supply and demand are more balanced such as Polypropylene, price support is likely to be hard-won.
But whichever polymer a processor is using, the additional cost and complication due to currency devaluation is one they could surely do without.
Katherine White, Plastribution Commercial Director.
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