COMMODITIES
Companies wanting to trade commodities face a bumpy Brexit
THE consequences of ‘Brexit’ and, in particular a Hard Brexit involving the UK leaving the single market and Customs Union, has been at the forefront of businesses around the world since July 2016.
The UK is still a member of the European Union (EU) for now, so trading standards and laws regarding commodities and energy still apply. This means businesses in our industry should be following through with implementing complex and onerous regulations that are due to apply from 3 January 2018 – termed the Markets in Financial Instruments Directive II (MiFID II).
However, Forensics Investigations and Compliance Director of KPMG UK, James Maycock stated in September 2016 that companies must prepare for medium, long term and beyond now.
Medium term issues in relation to Brexit mean the commodities trading industry will need to follow how current EU regulations, or substantially similar UK regulations, evolve.
UK-Europe trading commodities for hedging or speculative purposes could continue under current regulatory regimes; and the Markets in Financial Instruments Directive II (MiFID II) will have signifi cant impact on EU energy and commodity markets.
Long term, if the UK does not join the European Economic Area with no amended regime agreement, UK overseas energy and commodity fi rms, which are regulated by the Financial Conduct Authority (FCA), cannot trade derivatives throughout the UK - as trading fi rms holding British-owned MiFID II passports would be restricted.
An alternative to EU market access for the UK would be a MiFID II third-country regime, through a MiFID II-compliant EU branch or subsidiary. Most importantly, UK companies must keep in mind factors such as population, Gross Domestic Product (and Gross National Product), demand of commodities, time zones, skills and experience.
The UK’s post-Brexit political infl uence and global commodities trading should not be underestimated; especially considering that fi rms in the commodities and energy industry globally require access to UK-based trading venues such as the London Metals Exchange and ICE Future Europe.
UK needs to become China’s import choice
THE Recycling Association (RA) says the UK needs to deliver quality fi bre to compete in the global commodities market – with China being top priority for export.
The Chinese like UK material; fi bre strength is good, but as of February 2017 approximately 35% of China’s annual fi bre requirements are now internally-sourced.
This means companies such as Smurfi t Kappa need to provide a market leading and available material, but Ian Ledson, Blackburn- based General Manager of Smurfi t Kappa, said: “We operate our own paper mills in the UK and we do export some materials, but China isn’t our fi rst ‘port of call.”
Simon Ellin, CEO of RA believes UK companies which have sprung up on the back of the secondary commodity market need to pull together to position the UK as China’s number one choice via quality imports. He said: “Things are changing rapidly in the East and we simply have to react.”
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