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UK car tariffs under no-deal Brexit to pressure petrochemicals markets

London — The UK would raise tariffs on vehicle imports to 10-22% in the event of a no-deal Brexit, the government said Wednesday, risking significant disruptions to the European automotive industry and associated petrochemical markets.

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Vehicles principally designed to transport less than 10 people would be subject to an import tariff of 10%, while road tractors and vehicles designed to transport more than 10 people would incur a tariff of 16%.

Motor vehicles used to transport goods would be subject to a tariff of 10% or 22%, depending on cylinder capacity.

Introducing tariffs on cars is likely to significantly disrupt the automotive industry; the European Automobile Manufacturers Association (ACEA) said in its position paper on Brexit that "any changes to the deep economic and regulatory integration between the EU and the UK will have an adverse impact on automobile manufacturers with operations in the EU and/or the UK, as well as on the European economy in general."

According to data from the ACEA, the UK is a net importer of cars, receiving 1.8 million new passenger cars from the EU27 in 2018, representing 85% of total UK car imports and 32% of total EU27 car exports.

UK-assembled passenger car exports to the EU27 in 2018 totaled 671,583, accounting for 20% of total EU27 car imports and 51% of total UK car exports.

While the UK government has announced potential tariffs on finished cars, there is no reference to automotive parts. Around 80% of UK-imported automotive components were imported from the EU27 in 2018, ACEA data showed.

IMPACT ON MARKETS

The automotive industry in Europe was already struggling in an environment of considerable macroeconomic uncertainty, with car registrations growing just 0.1% in 2018, according to ACEA data.

Petrochemicals commonly used in the automotive industry were thus under significant pressure from the third quarter of 2018, including oxo-alcohols, which are used in coating applications for automotive paints, as well as solvents.

2-ethyl hexanol hit a near one-year low of Eur1060/mt FD NWE on January 24, and only recovered marginally to Eur1,070/mt FD NWE Thursday.

Similarly, n-butanol and iso-butanol hit one-year lows of Eur960/mt FD NWE and Eur800/mt FD NWE respectively on February 7. Iso-butanol was assessed at Eur820/mt FD NWE Thursday, while n-butanol was assessed at Eur960/mt FD NWE.

The possible disruptions to the European car industry caused by a no-deal Brexit could therefore put further downward pressure on oxo-alcohols.

"It all depends on the size of the pockets of UK citizens if they can still afford a car, which is unlikely," one European producer said. "If there is a shock to aggregate demand for cars, a couple of percent of decrease in oxo-sales to the coating and automotive industries will be applicable."

In polymers, the market was eyeing Brexit developments, but logistics remained the chief concern in the short term.

Demand from automotive industry represents around 10% of total plastic converter demand in Europe.

"Material will struggle to get in, there are already delays due to high wind," another source said, adding that there has only been limited pre-buying ahead of Brexit.

"We tried to prepare but we don't know how to prepare and up until now we had zero requests from customers," a third source said.

-- Leon Izbicki, leon.izbicki@spglobal.com

-- Lara Berton, lara.berton@spglobal.com

-- Edited by Jonathan Fox, jonathana.fox@spglobal.com