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The Foul Aroma of Isolationism

Posted on December 28th, 2016 by in Chemicals Industry News and Analysis

Stock exchange

Due to recent votes in the United States and the UK, aromatics players are increasingly fearful of the impact that political isolationism could have on market liquidity. ICIS analyst Rob Peacock elaborated on the concerns at a recent aromatics conference in Austria.

One of the major concerns for the global aromatics industry is the current political trend towards isolationism, illustrated by the vote in the UK to leave the EU and the election of Donald Trump as President-elect of the US, says ICIS Analytics & Consulting analyst Rob Peacock.

The implications of these events – and other forthcoming referenda and elections – for global free trade and geopolitical stability in the coming years was one of the main topics of discussion on the sidelines of November’s ICIS aromatics conference in Vienna, Austria.

Aromatics are among the most liquid of the global petrochemicals markets, but the liquidity of those markets is fractional compared to crude oil, according to Peacock.

“Nevertheless, the reported spot prices for these products are used as the basis for the contract negotiations that settle prices, mostly on a monthly basis, across much of the world,” Peacock said.

Aromatics market liquidity has shifted in the past few years, as China has grown in importance and production has been rationalized in Europe and the US.

“This has led to a position of increased needs for imports of benzene from Asia. Changing market environments, including the growth of China as an importer and the rationalization of production capacity in other countries for the major aromatics, have changed global trade flows,” he said.

“Another recent event that may affect petrochemicals trade is the exit of two of the largest traders in Europe and the US – Trammo and Vitol,” Peacock added.

“It will certainly further impact all the businesses active in buying, selling and trading chemicals and will decrease liquidity in the Atlantic basin benzene markets in the short term,” he said, noting that the exits were not caused by recent votes, and that other players will likely pick up the business over time.

Reduced liquidity in Europe also raises questions for the future stability of the market, according to Peacock. “For some petrochemicals, liquidity in Europe has thinned to such an extent that the approach to settling contracts has changed, such as spot prices in other regions being used as a basis for negotiation. If less spot material is available, then it is likely that these markets, which are already affected by volatility in crude oil prices, will become more volatile,” he said.

“Will opportunities to keep bringing petrochemicals into Europe and the US remain if trade barriers increase or will producers and consumers build on existing relationships and keep product flowing alongside those trading companies still in the market?”, Peacock asked.

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