Where is sector growth?

07 January 2002 00:00  [Source: ICB]

Tidy error!

Automotive

Following a robust 2001, the economic downturn in the US and Europe is expected to drive down demand and production levels in the automotive industry, with knock-on effects in the chemicals sector.

In a report, investment bank ABN AMRO says global automotive production levels will decline by 2.5% in 2001, accelerating to a reduction of 5.6% in 2002. The road to recovery is a long one - only in 2003 can we expect to see production increases, then only by a modest 3.9%.

Although the bank expects global GDP growth to recover from 2.1% in 2001 to 2.4% in 2002, this will not be reflected in the auto market, as the forecast figures show.

This is because vehicle manufacturers are expected to reduce the consumer purchasing incentives that have so far kept demand alive. Many are suffering from stretched balance sheets and can no longer afford to offer low- or zero-interest deals.

Many European chemical companies have significant global exposure to vehicle manufacturing. As a percentage of sales, most at risk are Johnson Matthey (34%), Bayer (25%), Ciba Specialty Chemicals (22%), BASF (18%), Solvay (19%) and DSM (16%).

In the US, production should decline, year-on-year by 16% in 2002 to 13.2m light vehicles. The mix may change too, with more cars and fewer light trucks.

Falling demand in vehicle manufacturing results in lower demand for plastics, resins, rubber, autocatalysts and coatings materials. Automotive companies will also be looking for price reductions from suppliers to improve profitability against the background of falling sales.

In the US, Daimler Chrysler has already asked for an automatic price cut of 5% from every supplier, and this is expected to continue in 2002.

On a brighter note, there is the possibility that low inventory levels will cause a rapid recovery when demand does pick up.

ABN-AMRO says that in these circumstances, any recovery in the market 'historically has had the effect of stimulating and thus exaggerating demand, leading to improved prices, utilisation rates and generally margins'.

Global automotive production

2000 2001f 2002f 2003f 2004f
North America
Total '000 units 17 653 15 759 13 292 13 956 14 654
% change 0.3 -10.7 -15.7 5.0 5.0
Western Europe
Total '000 units 16 477 17 054 15 689 16 295 17 031
% change 1.8 3.5 -8.0 3.9 4.5
Japan
Total '000 units 10 068 10 097 10 023 9.861 9.772
% change 2.9 0.3 -0.7 -1.6 -0.9
World total
Total '000 units 57 412 56 000 52 840 54 915 57 297
% change 4.9 -2.5 -5.6 3.9 4.3
f = forecast

Source: ABN Amro

Construction

Construction activity in the US is expected to see an overall decline of 6.3% this year, due to the economic downturn in the country, according to speakers at CMD's North American Construction Forecast conference. Bill Toal, chief economist for the Portland Cement Association, expects a 10% decline in private, non-residential construction spending this year, after a 5.4% drop last year. However, he anticipates an overall increase of 4.2% by 2003, with the residential market possibly starting to improve from the first quarter of this year.

In Europe, forecasts made in mid-2001 by the Copenhagen Institute for Futures Studies (CIFS) expected the sector to pick up this year with growth of around 2%, up from 1.5% in 2001. However, by December, Cresme was forecasting a phase of stabilisation in 2002 with a slow recovery from 2003. Even mid-2001, CIFS said the German market, the single biggest in Europe accounting for 20% of the total, was expected to remain subdued through to 2003.

The largest contributions to volume growth are expected to come from France, Spain, Italy and the UK, although in terms of relative growth, central eastern European countries (Czech Republic, Poland, Slovak Republic and Hungary) are expected to outpace the rest.

###10699###

Cresme says the west European construction sector will grow at a slower rate than the economy. In 2001 GDP grew at 1.7% and construction at just 0.1%. It does not expect this gap to narrow significantly over the next three years. In eastern Europe, in the 2001-2002 two-year period, the economy will grow by a total of 3.6%, while construction will fall by 3.3%. However, construction growth is expected to outstrip GDP growth from 2003, rising at 5.3%/year, compared to 3%/year.

The type of construction varies between the two regions. Renovation and modernisation account for more than a third of construction output in western Europe, while in central eastern Europe, activity is dominated by new non-residential construction and civil engineering.

S¿ren Jensen, chief economist and senior analyst, CIFS, expects construction activity to be down in some sectors and countries this year but holding steady in others.

Packaging

Explosive growth in China will give a much needed boost to packaging in the coming years, according to US-based industrial market research firm The Freedonia Group.

The global pharmaceutical packaging market will increase 4%/year to $18.2bn in 2005. China will generate the fastest growth opportunities, fuelled by economic expansion and outside investment. Demand in Europe and the US will advance more slowly ranging from 2.7%/year in Switzerland to 4.2%/year in France, says the group.

Blister packaging will provide the best worldwide growth with demand increasing over 6%/year to $4bn in 2005. Western Europe will be an especially strong market, believes Freedonia, as the EU has chosen blister packaging as the preferred format for prescription drugs.

Plastic pharmaceutical bottles will increase by 4%/year and pharmaceutical pouches and strip packs will see 'average gains', the group adds.

The use of plastic labels will cut deeply into traditional paper applications in the coming years, capturing 27% of the world market by 2005.

Demand for beer containers will reach 315bn units by 2005, an increase of nearly 3%/year. Freedonia says plastics will represent the fastest growing segment of this industry, capturing 3-4% of the world market by around 2015. In five years, the group says demand for plastic beer bottles will increase tenfold from the 'minuscule levels' of 2000.

Beer containers will rise fastest in developing regions of Latin America, eastern Europe and Asia. The group says China holds some of the best prospects and is expected to surpass the US as the world's largest beer market early next decade.

Significant increases in food and drink products going into plastic packaging have definitely helped stimulate innovation and business for some companies, says Matt Clements, industrial issues executive at the British Plastics Federation. This will be boosted by biodegradables which will probably grow as they become fashionable. But most companies are still suffering from difficult trading conditions and over-regulation, adds Clements.

'The role for plastics in packaging will probably grow as more people are living alone for longer so increasing the demand for products packed-for-one,' he says. But this has implications for plastics with the European Commission putting packaging waste at the top of its list of priority waste streams. This has led to the 'politicising packaging', says Clements. The EC Directive on Packaging and Packaging Waste and the UK Packaging Waste Regulations are a two-sided coin for processors, explains Clements. 'They have to both abide by the regulations and respond to customer pressure seeking particular designs and materials on the basis of regulatory demands'.

Global demand outlook

Growth, Market by
Sector %/year 2005
Pharmaceutical 4 $18.2bn
Beer containers 3 315.0bn units
Label shipments 7 $61.5bn
Source: Freedonia

Engineering thermoplastics

Against medium-term demand growth of 8%/year, engineering thermoplastics (ETPs) in Europe hit the wall last year and saw growth stagnate. Some polymers, notably acetal and polyamide, saw close to 10% contractions, with the slump accelerating through the year. PBT growth was also reported down.

Sales into the electronic/electrical goods and telecoms markets were hardest hit. ETP specialist Ticona, for instance, reported year-on-year volume declines in each quarter last year, with Q2 and Q3 down by as much as 20% on a global basis. Other players also openly report difficulties in the market and are making cuts.

Whether this year will prove any better rests on how the world's economies fare. The bulk of ETPs goes into automotive and electronic/electrical goods, sales of which are sensitive to confidence in global economies. But the feeling is that 2002 will see a certain bounce back from the slump of 2001, to somewhere near growth levels for Europe of 4-8%/year. A pick up is indicated with stocks low at processors and customers. The first half of the year, however, is expected to be difficult, with the US, Japan and Germany in recession.

Recent figures from AMI suggest that ETP demand in Europe as a whole grew slightly in 2001 (up from 2.60m tonne to 2.66m tonne), with central and eastern European countries making up for the slowdown in the west. Indeed, there is a strong shift to moulding in places like the Czech Republic and Hungary, with UK moulders especially feeling the brunt of the manufacturing relocation. This trend is expected to continue.

ÊÊPolycarbonate looks set to remain the best performer in terms of growth, as applications in optical data storage and automotive glazing continue to propel growth rates. Growth will be needed, as GE Plastics and Dow Chemicals have new capacity coming onstream in Europe next year.

ÊÊAMI also considers PBT growth will resume, ahead of investments planned by DSM/Ticona and Bayer/DuPont in 2003.

Issues facing ETP producers this year include shorter product life times; customer drives to lower costs; the increased role of larger buyers, especially in automotive and electronics as players consolidate; buyers looking for fewer suppliers, and globalisation of customers. The winners will be those suppliers with a coherent product portfolio and the ability to supply globally. Ability to enact business online will also be a major competitive factor in this and future years.

ETP capacity increases in Europe in 2002, '000 tonne/year

Company Polymer Increase Location
GE Plastics polycarbonate 130 000 Spain
Dow Chemical polycarbonate - Germany
Dow Chemical ABS 75 000 Netherlands
DSM copolyester - Belgium
Ticona acetal 23 000 Germany

Paints and coatings

World demand for paints and coatings is forecast to grow by 3.7%/ year to more than 28m tonne/year in 2005, according to US consultancy Freedonia Group's World Paints & Coatings study.

Construction will remain the largest end use market, particularly the residential sector. The automotive markets will see relatively sluggish growth based on a slower outlook for motor vehicle production. The continuing move from low-solids liquids to high-solids liquids and powder coatings in OEM markets will also contribute to slower growth, says the report.

Geographically, the most rapid gains will be in emerging markets, especially in Asia-Pacific, although Latin America and eastern Europe will also experience above average growth, says Freedonia. Within Asia, the growth will be focused on China, although India, South Korea and Taiwan will contribute. In Japan, the overall market is forecast to post below-average growth, although the paint market is expected to reverse the steady declines of the last decade.

Coatings markets in eastern Europe are growing by about 8%/year, says Jean Schoder, secretary general of the European Council of the Paint, Printing Ink and Artists' Colours Industry (CEPE). There is still a lot of additional potential, he says, because in Poland, for example, annual paint consumption is 8kg per capita, compared to 16kg per capita in the European Union.

By contrast, the coatings markets in western Europe, North America and Japan are mature and competition is fierce. According to Schoder, the paint industry can expect an average growth rate of 2-3%/year in these regions.

North America and western Europe will continue to account for more than half of global demand, says Freedonia. Future gains in North America will be below the worldwide average, although this will be partly offset by growth in Mexico. Major efforts will be needed by companies to increase their profitability in the 'old' markets, says Schoder.

World paints and coatings demand, '000 tonne

Growth, %/year
2000 2005 2000-05
North America 7010 8010 2.7
Western Europe 5605 6400 2.7
China 1903 2625 6.6
Japan 1851 2060 2.2
Other Asia-Pacific 2815 3685 5.5
Rest of world 4416 5520 4.6
Total 23 600 28 300 3.7
Source: The Freedonia Group

Electronics/electricals

The electronic chemicals market suffered during 2001 after a strong year in 2000. US consultancy The Freedonia Group expects a recovery in the market from the second half of this year, followed by a very strong year in 2003 with a growth rate of 18%, then a moderate year in 2004 with growth at 12%. Overall, over the period 1999-2004 the net growth is expected to be 9%, putting the market at $16.7bn in 2004, says the company. This growth figure has been revised down by 1.3% since Freedonia published its World Electronic Chemicals to 2004 report in April 2001 because the downturn in the sector has become more protracted than expected.

BRG Townsend has also revised its more cautious growth forecast of 9.3%/year during 1999-2004, down to 6-7%/year for the period.

Freedonia says the long-term prospects for electronics chemicals remain favourable. Technological innovation will drive growth in semiconductor (SC) chemicals and dramatic increases are predicted for SC substrates. Demand for most other SC chemicals will also be strong, and Freedonia predicts that photoresists will post the strongest long-term growth. Growth in PCB chemicals will be slower, with the greatest potential being in niche products, such as cleaning agents and adhesives, says BRG.

Among smaller volume segments, Freedonia expects dramatic growth for chemical mechanical planarisation slurries as CMP processes find more widespread use.

World electronic chemical demand, $m

% annual growth
1999 2004 04/99
Electronic chemicals demand 10 755 17 550 10.3
By type
Packaging & substrate materials 3032 4870 9.9
Photoresists & ancillaries 2145 3660 11.3
Gases 1879 3000 9.8
Semiconducting materials 1187 1965 10.6
Other 2512 4055 10.1
By region
North America 3840 5830 8.7
Western Europe 1345 2085 9.2
Japan 2375 3420 7.6
Other Asia-Pacific 3080 6010 14.3
Rest of world 115 205 12.3
Source: World electronic chemicals to 2004, The Freedonia Group, April 2001

Polymers

This year is expected to see only a slight improvement in commodity polymer fortunes, as demand remains sluggish and overcapacity in global markets keeps operating rates low. The situation is worse in the polyolefins and polystyrene sectors.

Global operating rates for PE, for example, fell close to 80% last year, and are expected to pick up only slightly this year, before a much sharper recovery in 2003 and 2004, which may well represent the next peak, with operating rates climbing above 90% for the first time for close to 10 years.

Help is at hand in two ways. First inventories are low along the processor chain after very low level demand in the second half of 2001. Producers are expecting the pick up to be sharp when it does come as converters start restocking from very low levels.

Second, there is little new capacity in 2002 and thereafter. Globally, this year will see PE capacity grow by a relatively low 4.2%, with an even lower 3.2% rate expected in 2003, and virtually nothing in 2004 and 2005. In 2003 the bulk of the investment will be in the Middle East and Latin America.

In North America, for example, no new capacity is expected after this year, which sees the startup of just 360 000 tonne/year of new capacity, largely by the Chevron Phillips Chemical/Solvay/BP partnership. This represents an addition of just 1.8% to North American PE capability.

In Europe, this year will see new PE capacity added by Solvay/BP and Atofina. Chemopetrol and Dow Chemical have new capacity planned for 2003, to be followed in mid-2004 by Basell's new 320 000 tonne/ year hdPE unit at Wesseling, Germany.

The situation is similar for PP, which in Europe has seen a number of players throttling back plants this year, and even closing them. Little new capacity is expected in Europe and North America, and low operating rates are expected to recover only by 2003-04. In Europe, Hellenic, Atofina and Basell have new plants coming onstream.

The polystyrene market is in a steep down-cycle, according to consultancy CMAI, which describes 2001 as an 'atrocious' year. Although demand is expected to improve in 2002, it will still be subdued and the industry will need to proceed with some more rationalisation.

In spite of a certain stability achieved during the summer, European PS prices have continued to plummet, hitting DM1.49-1.52/kg for GPPS and DM1.59-1.62/kg for HIPS in November. Players believe further erosion may be difficult to prevent if demand does not improve in quarter one this year.

PVC markets in Europe had a tough year last year, marked by low pricing and poor profitability. Despite producers' efforts to boost prices during the second half of the year, modest increases achieved in September and October were given away in November.

Global PE capacity additions, '000 tonne/year

Region 2001 2002 2003 2004 2005
North America 860 360 - - -
Europe 726 658 320* - 250
Middle East 410 1112 1384 - -
Asia 1475 658 - 90 -
Latin America 340 90 500 - -
Total 3810 2880 2200 90 250
Addition, % 5.8 4.2 3.2 0.1 0.3
*See text below SOURCE: NEXANT CHEM SYSTEMS

Aromatics

There is much confusion across the European aromatics sector over the outlook for 2002.

Last year proved one of the worst for benzene producers as all the underlying structural elements of the market suffered extreme pressure. The delta with naphtha hit a low of $20-25/tonne by mid-year against a 'comfort' figure of $100/tonne.

Benzene spot values in Europe have halved since early 2001, hitting $185/tonne fob NWE in December. Oil prices have been the sole benchmark against which benzene values have been set as the economic slowdown started eating into downstream demand for styrene/polystyrene, cyclohexane and cumene.

Further along the chain, styrene has also suffered a price slump to $350-370/tonne fob NWE and producers do not expect a recovery during the first half of 2002. Players are keeping a close eye on oil prices and benzene contract talks and expect a E30-40/tonne drop for quarter one on the quarter four benzene contract of E270/tonne FD.

On a global basis, styrene operating rates suffered their lowest levels for a decade, dropping to around 87%. Rates are expected to recover a little this year, with further improvements out to 2005, to close to 94%. However, pessimistic forecasts point to demand growth of just 2.5%/year in 2001-05, much down on recent historical levels of 4-5%/year for the 1990s.

On the positive side, there are few expected capacity increases in the next two years, notably at Ellba in Singapore and Chevron Phillips Chemical in the US this year and at Lyondell, Netherlands, in 2003.

Paraxylene contract prices were at the centre of much controversy during last year, particularly the quarter three level of E640/tonne FD, which caused derivatives producers to slash operating rates in some cases.

Demand in the polyester chain has been poor, and the quarter four figure of E542/tonne has already tumbled to E400/ tonne in quarter one 2001 as a result of globally softer market conditions.

Orthoxylene Q1 also settled just before the new year break, at E378/tonne, down from Q4 2001's E412/tonne mark. Little improvement is expected in the market this year as downstream demand remains lacklustre.



AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly