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Risks of no-deal Brexit prompt stockpiling of polymers: sources

London — The UK polymer industry has started stockpiling vital components to mitigate currency and logistical risks associated with a no-deal Brexit scenario, sources said this week.

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Market participants highlighted that the devaluation of the pound, which is widely expected if the UK and EU fail to reach a post-Brexit transition deal, may significantly increase costs for the polymer industry in the short-term.

The polymers industry is among the most exposed to risks of a currency devaluation given that the UK is a net importer of polymers, including polypropylene copolymer, high density polyethylene and polyvinyl chloride.

In 2017, net imports of HDPE were around 468,100 mt, with Belgium being the main exporter, followed by the Netherlands, Germany and France, Eurostat data showed.

Meanwhile, net imports of PP copol stood at 215,500 mt, with PVC net imports at 167,000 mt, the data showed.

"Forecasters predict an immediate 10% devaluation of the pound in the event of a no-deal with a significant impact on pricing," Katherine White, commercial director for Thermoplastics at Plastribution said during a webinar Friday.

"Most producers set prices in euros, meaning that importers in the UK need to match the price in the face of a currency devaluation," she continued.

As a result of the relatively weaker pound, Plastribution estimated that polypropylene homopolymer prices would increase by GBP150/mt, while high density polyethylene prices would increase by GBP135/mt.

S&P Global Platts last assessed PP homo at Eur1,180/mt FD NWE and HDPE injection at Eur1,060/mt FD NWE Wednesday.

Further affecting trade flows and prices is the risk of higher tariffs -- both on EU exports to the UK and UK exports to the EU. In case of a no-deal Brexit, World Trade Organization rules would apply to trade in the polymers sector, meaning that a 6.5% tariff rate would be applicable on EU-UK trade flows.

Lastly, significant logistical risks persist in case of a no-deal Brexit such as delays at border crossings, which could result in significant disruptions to supply chains, particularly for just-in-time deliveries.

"Disruptions at the [Dover-Calais] border crossing would impact the availability of products," Katherine White said. "European transporters may also refuse UK deliveries due to the potential delays at the border which would further aggravate the risk of supply shortages," she added.

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In order to mitigate some of these risks and prevent supply shortages, sources said UK companies had begun stockpiling activities.

"We are already receiving regular reports of congestion from numerous ports in the UK leading to delays as companies import more stock into the UK, just in case," Katherine White said.

Another source said: "There is uncertainty around logistics and in a no-deal Brexit scenario transportation would be difficult to manage. The market is preparing in advance."

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

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

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com