As the petrochemical industry is truly global, geopolitical issues have a huge impact. This is evident by oil and petrochemical prices and movement and the tug-of-war going on between oil producing regions operating under a delicate balance between keeping their market share and trying to keep prices up. OPEC will soon be having discussions on whether to extend their production cuts for another six months, especially considering Russia has only cut one-third of what is initially promised it would and the USA is producing oil at record levels and doing so profitably in a $50/barrel environment.
The current global politics that are reshaping the world include President Donald Trump’s economic and international policies, Brexit, the upcoming French elections, the potential demise of the EU and a shift of power towards the east to name a few.
Starting in the US, Trump’s actions are far- reaching. Just this month markets fell as did the Russian ruble on the back of Trump’s surprise strike on Syria and stocks in the US dropped after the US bombed Afghanistan. However chemical companies are bullish on Trump’s economic policies, as a potential $1Trn has been earmarked for infrastructure spending which has spurred optimism among businesses as this will increase demand for chemical products. There is still the challenge of where this additional cash will come from and whether Trump will deliver on his promise. Another area that could affect companies is the proposed border adjustment tax which Trump is now considering, this would put a value-added tax on imported goods and is designed to reduce a company’s incentive to offshore products.
Meanwhile in Europe, the upcoming French elections has seen the Korean won and global markets come off as tensions remain elevated. Everyone is nervously watching as the EU is already on shaky ground. Everyone is still reeling from Brexit which is not just a UK issue but a global one as Britain negotiates its exit. For petrochemicals, the impact is palpable with a lot of uncertainty for companies that have operations in the UK. Leaving the free-trade area or the customs union would lead to higher tariffs between the UK and the EU, plus the additional costs of goods being tied up in ports for custom inspections lengthening delivery times and putting UK based companies at a disadvantage. This is all awhile the UK faces political turbulence as prime minister, Theresa May, has called for a snap general election. Another development for the petrochemical market is Iran as it has a huge chemicals industry and cheap feedstock, albeit underinvested in due to sanctions, but one where when the remainder of US sanctions come off it will be a lot easier for companies there to raise finance and invest in the country. The Gulf State’s position in the supply of petrochemicals is undefeated, and as the US has steadily reduced its reliance on Middle East energy, the ME Gulf has been focusing on developing its relationship with the Far East as the population and demand is expected to grow rapidly in Asia leading to an increased dependency on imported product.