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(BFM Bourse) – Spirits groups are struggling on the Paris Stock Exchange after Beijing’s decision to apply security deposits on cognac imports, a prelude to customs surcharges.
The spirits sector is clearly struggling on the Paris Stock Exchange, undermined by China’s decision to introduce a deposit on imports of spirits from the European Union, particularly cognac.
Pernod Ricard, Rémy Cointreau, and to a lesser extent LVMH, are the collateral victims of the intensification of a commercial contest between Beijing and Brussels. The measures taken by China respond, in fact, to the increase in customs duties desired by the European Commission on automobiles produced in China.
Rémy Cointreau, known for its Rémy Martin cognac, plunged 8.2% on the Paris Stock Exchange this Tuesday. Pernod Ricard, with its Martell cognac, lost 4% while LVMH, which markets Hennessy cognac, returned 4.4% on Tuesday around 11:25 a.m. The luxury group’s stock is also penalized by investors’ disappointment over the absence of new announcements from Beijing.
In a press release, the Chinese Ministry of Commerce (Mofcom) announced that importers of European brandies (spirits) would have to deposit a deposit with Chinese customs from October 11, 2024. This deposit will be debited if China actually decides to apply customs surcharges on these products.
Which may actually be the case since Europe, for its part, is on its way to overtaxing Chinese vehicles. The European Commission plans to add 10% tax already in place, a surcharge of up to 35% on Chinese-made battery vehicles. This measure is due to come into force at the end of October.
“The Chinese government has imposed the posting of a customs bond on European brandies, and unsurprisingly Rémy Cointreau and Hennessy are the most penalized. It should be remembered that Chinese cognacs represent around 0.7% of LVMH’s revenues and that the group’s spirits division is the most profitable after leather goods,” explains Jie Zhang, analyst at the independent research firm Alphavalue. “That’s a bit too much bad news,” adds the analyst.
New episode of a trade war
This threat has been looming over the two major alcohol producers on the Paris coast since the start of the year, Rémy Cointreau and Pernod Ricard. In January, the Chinese Mofcom (“Ministry of Commerce”) opened an investigation into European “brandy”, alcohols which include French cognac and Armagnac.
“The global cognac market represents 50 billion dollars, 20% of which is in China in volume and 23% in value. If China decided to implement tariff barriers, the geography’s potential would be heavily penalized,” he said. side Sarah Thiron, analyst at TP ICAP Midcap, in a note published at the beginning of July.
In addition to the political risk in China, alcohol producers must deal with declining volumes, after strong post-covid demand, and high stocks in the United States. Rémy Cointreau anticipates a gradual recovery in its 2024-2025 financial year, while Pernod Ricard indicated this summer that it was counting on a like-for-like increase in its turnover for the 2024-2025 financial year and a maintenance of the current operating margin.
Sabrina Sadgui – ©2024 BFM Bourse
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