As has already been evident for those of us who like to spend our summer holidays in Europe, we have seen further erosion in the price of sterling over the last few months.
This has been because Europe is seen as stronger and more settled, particularly since the French elections, whilst the UK continues to experience uncertainty due to the Brexit negotiations. A rise in UK interest rates is now also seen less likely. But whilst this is troubling for us as holiday makers, the consequences are more worrying for UK plastics processors.
Since around 80% of the polymers consumed in the UK are produced in Europe, the value of Sterling versus the Euro is a key factor in determining UK polymer prices. This month for example, many producers initially rolled over polyolefin polymer prices in Euro terms, following the rollover in Ethylene and Propylene feedstock prices. However, the depreciation in Sterling since the start of July meant an increase in UK polymer prices.
The effect is particularly notable for engineering polymers where the high value of the products can result in sizeable increases in Sterling prices.
Of more concern is the fact that most commentators expect that Sterling will continue to come under pressure this year, with some forecasting that the value of the Euro and Sterling could reach parity. And this at a time when we are expecting increases of the underlying cost of polymers too.
Such a double blow would prove particularly uncomfortable for UK plastics processors, particularly when many report conditions of slack demand and general malaise due to Brexit uncertainty.
Fortunately for those processors using products that are made in Dollar based countries such as the Americas, the Far East and Asia, Sterling is holding up well against the Dollar. Here, the question marks around the stability of Donald Trump’s presidency are putting the Dollar under pressure.
Unfortunately though, not all products are available from Dollar based suppliers and many processors have no choice but to purchase from Euro based producers.
Typically, LLDPE and HDPE tend to be produced in Dollar based countries, but even then, if they are sold to the UK through European head offices or sales networks the Euro/UK conversion rate still applies.
Should the commentators prove correct and Sterling continues to come under pressure, perhaps even reaching parity with the Euro, UK polymer processors will undoubtedly find themselves dealing with increasing pressure on polymer prices.