UK chems sector stabilises in Q2, risks of second wave, Brexit pose threat

LONDON (ICIS)–UK-based chemicals producers marked stable to improved export sales in the second quarter but risks for the industry remain on the horizon, according to the Chemical Industries Association (CIA) on Wednesday.

Half of businesses stated that exports to the EU and the rest of the world remained at current levels or improved in the second quarter following severe declines earlier in the year, in response to a survey conducted by the CIA.

The same number of respondents also noted capital expenditure and business utilisation had also tracked stable-to-improvement in the same period, while 80% marked similar trends in growth in employee numbers and Research & Development (R&D) spending.

A pickup in activity was recorded throughout Europe in latter part of the second quarter, as lockdown measures began to ease and economies started to recover.

This is supported by a strength in the retail trade in June from May levels, with a 5.7% increase marked in the eurozone, reflected by a 5.2% rise in the wider EU, accounting for seasonal adjustment.

Growth continued from May, when retail trade marked a 20.3% jump in the eurozone, while climbing 18.3% in the EU, meaning that retail trade volumes for both blocs returned to levels reach before containment measures were implemented in 2020.

Compared with the previous year, the calendar adjusted retail sales index increased by 1.3% for both the eurozone and EU.

Conditions are expected to continue on this trajectory in the third quarter, with 80% if businesses expecting stable or improved domestic sales, with more than 70% of firms anticipating the same for export sales and capital expenditure.

Not all indicators are positive, as around 10% of companies expecting continued job losses and R&D expenditure reductions, as some downstream industries – such as automotive, aerospace and construction – have suffered more than others – including healthcare, food and drink and some consumer goods areas.

Despite some resilience CIA chief executive Steve Elliott says that the prospect of increased coronavirus infection rates in the second half of the year, coupled with Brexit means that the future is uncertain for the UK’s biggest manufacturing export market.

“An autumn demand stimulus package for those manufacturing industries that have been hardest hit will help the entire supply chain,” said Elliott.

“What we as a sector need is a successful conclusion to the UK:EU trade talks including tariff-free frictionless trade and regulatory consistency; taxation reform through a reduction in corporation tax; improved incentives for R&D and a new green energy deal with a serious review of energy costs.”

The prospect of a no-deal Brexit will have severe implications for the UK’s chemicals industry, as it would struggle to sell materials to the EU – the country’s largest trading partner – as materials would not be housed under Reach regulation.

Front page picture: Signs calling for safety measures as London’s bars and restaurants reopened in July
Source: Guy Bell/Shutterstock

Focus article by Morgan Condon