FocusAuto industry drives down petrochemical demand

29 January 2009 11:46  [Source: ICIS news]

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By Mark Victory

LONDON (ICIS news)--Petrochemical companies have been hit hard by the sharp slowdown in the automotive sector and remain unable to predict its depth and longevity, industry sources said on Thursday.

“Nobody knows what the total impact will be… [but there will be] a reduction in consumption for sure… some big companies are just shutting down production,” said Raymond Vissers of petrochemical company Vinmar.

New European car sales in 2008 suffered their sharpest decline in fifteen years, with the EU predicting a further 10-20% fall in 2009. In the US, December sales dropped by a third, and in Japan they fell by 6.8% in 2008 from 2007.

Many in the petrochemicals market are in an extremely bearish mood and see no hope of a quick revival.

“The outlook is depressing… The best you get is that we’re looking at a double-digit decrease,” said one major European producer of end-use products for the auto industry.  

This was echoed by a US producer, who said: “We could drop prices 20 cents/lb and we wouldn’t pick up any sales. My customers are not very bullish about the first six months of the year.”

Despite daily news of further dismay in the industry, there are those that remain positive.

A large distributor of automobile-related petrochemicals said that “this cannot last more than a few months. December and January are normally weak anyway”.

This was echoed by a US polyurethane (PU) foam maker, who said: “January volumes were down, but we’ll see a pick-up in orders as the auto plants get going again.”

One market player even went so far as to declare the crisis in the auto industry “fake”. He instead blamed the situation on banks' refusal of credit lines to car dealerships, which was forcing them to cut back on offtake from the manufacturers.

A general unwillingness to predict beyond the next quarter has pervaded the petrochemicals industry.

A worrying sign is that car manufacturers appear united in their view that the downturn will be deep and lasting.

Renault-Nissan’s CEO, Carlos Ghosn, who also heads the European Automobile Manufacturers’ Association (ACEA), echoed the majority opinion when he stated: “The industry faces a crisis that is brutal, global and exceptionally large. We can even talk of the Great Depression of 1929.”

Hope for European car manufacturers has come in the form of proposed state rescue plans in Italy, France, Germany and the UK.

On 23 January, EU business ministers met to discuss ways of stimulating the beleaguered industry, and the US is expected to formulate a plan in February.

However, these proposals are mostly framed around loan guarantees rather than initiatives to stimulate demand for cars.

As a result, government intervention is unlikely to have any net benefit for the petrochemicals industry, where consumption has nosedived.

Petrochemicals linked to the car industry have seen a major drop in demand worldwide. Some of the worst affected include polymethyl methacrylate (PMMA), which is used to make car headlights; styrene butadiene rubber and Nylon 6,6, which go into car interiors; and styrene butadiene rubber, which is used to make tyres.

A major tyre manufacturer estimated demand at zero, a sentiment echoed by Nylon 6,6 and PMMA market players.

As a result, petrochemical companies have cut production and idled plants.

BASF’s plants are operating, on average, at below 75%. One hundred and fifty workers at two sites in Italy and 1,500 workers in Muenster, Germany, have been placed on short-time working

BASF said it has not ruled out an extension of shorter working times to other sites. A company source said that “all of our plants where capacity has been reduced, or which have been shutdown, have close links to the automotive industry”.

BASF is not alone.

Invista’s planned closure of its adipic acid (ADA) and nylon 6,6 plants in Wilton, Teesside, UK, prompted one major ADA and nylon producer to say that it was a “message to our customers that the industry is in serious trouble”.

Again, the slump in car manufacturing was a significant cause, and decline has recently sharpened.

According to data from the ACEA, new European passenger car registrations fell by a colossal 18.5% in December. European petrochemical companies have estimated a sharper 50% decline in auto production.

The US and Asian auto industries have mirrored the troubles faced by Europe’s car makers.

In the US, December auto sales were down 33%. Chrysler’s sales plunged 53% in December, and General Motors is to cut first-quarter production 60% compared with 2008.

A distributor of maleic anhydride, which goes into car plasticisers, said the fall-off in the auto industry has not simply developed over the last few weeks.

“Sixty to seventy percent of our customers work for the automotive industry. What we read in the newspapers of reductions in January of 25-30% we started seeing from October. This has caused the mess that we went through last month.”

The coming months will reveal a clearer picture of the effects of the auto industry’s troubles on the petrochemical industry. But the early signs foreshadow bleak times ahead.

Peter Gerrard, Nel Weddle, Heidi Finch, Julia Meehan, Sian Jones Souabni, Linda Naylor, Shelley Kerr, Gene Lockard, Leela Landress, Helen Yan, Stuart Moir, Truong Mellor and Stephanie Wilson also contributed to this article

For more on petrochemicals visit ICIS chemical intelligence
Read Paul Hodges’ Chemicals and the Economy Blog
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By: Mark Victory
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