FocusTougher US fuel standards may boost plastic demand

20 May 2009 23:46  [Source: ICIS news]

By Ben DuBose

HOUSTON (ICIS news)--The tougher US auto fuel economy standards announced this week by President Barack Obama should benefit plastics producers through an emphasis on lighter auto parts and hybrid vehicles, several industry sources said on Wednesday.

The standards will require all new passenger cars to meet a 39 miles per gallon (mpg) (16.6 km/litre) standard by 2016, up 42% from 27.5mpg currently. Trucks will have to meet a 30mpg standard, a 30% increase from 23mpg today.

“The new standards will mean autos and trucks will have to be made of lighter weight materials,” said Paul Hodges, chairman of International eChem, a chemical consulting firm, who also writes an economics blog for ICIS. “This should provide a golden opportunity for polymer manufacturers to replace current metal and glass usage.”

Known as the corporate average fuel economy (CAFE) standard, the earlier target under the 2007 federal energy bill called for an average of 35mpg by 2020.

The plastics industry has struggled of late amid the global recession and announced plant shutdowns from auto companies including General Motors (GM) and Chrysler. To that end, the new standards will not offer immediate help because they would not even start to be phased in until 2012.

However, the standards should provide opportunities for plastics companies able and willing to take a more medium-term view, Hodges said.

“The [auto] industry will be very challenged to meet these goals for 2016, and I think they will be willing to look at plastics applications that in the past might have been too expensive to put on a vehicle,” said Bruce Belzowski, an assistant research scientist for the University of Michigan Transportation Research Institute.

“The equation that manufacturers use to decide whether to use new materials to reduce weight has changed,” he added.

Specifically, plastics’ percentage of a vehicle's weight could increase by as much as five times, according to Jim Kolb, senior automotive director with the American Chemistry Council (ACC).

"As CAFE standards inevitably tighten, we see a major shift toward more lightweight plastics and plastic composites used to preserve vehicle size, maintain safety and improve choices for power trains," Kolb said.

"Today, a typical vehicle is about 10% plastics by weight and about 50% by volume," he added. "By 2020, the figure could go as high as 50% by weight."

In addition to lighter auto parts, plastics makers could also benefit from the high-mileage standards through the increased production of hybrid vehicles.

In particular, the lithium-ion battery used in some electric cars has attracted attention from chemical companies, which could charge a premium for plastic parts used in production.

Nickel hydride batteries – which power the Toyota Prius – are the most readily available and currently dominate the market, but the role of lithium-ion batteries could grow under the new standards because they could be cheaper to mass produce, sources said.

Lithium-ion batteries are lighter and smaller than nickel hydrides due to the reliance on plastics, in addition to providing better voltage and a higher tolerance to a wider range of temperatures.

ExxonMobil recently opened a $300m (€219m) plant in Gumi, South Korea, to manufacture lithium-ion-battery separator film to meet expected demand growth.

Meanwhile, GM is banking on lithium-ion batteries to power its Chevy Volt, a plug-in hybrid that the company plans to release next year. The company says the car will drive 40 miles on a single battery charge.

And Michigan - home to all the major US automakers - recently announced that four companies – including a Dow Chemical joint venture - would start developing and manufacturing lithium-ion batteries in the state.

But those lithium-ion plans are considered longer-term prospects, Belzowski said. For an immediate response, auto companies will likely emphasise more plastic in parts.

“It will take a while to ramp up pure electric and plug-in hybrid vehicles, so the focus will be on improving current powertrains and weight reduction and general lightweighting of the vehicle in order to meet the 2016 goals," Belzowski said.

($1 = €0.73)

For more on Dow Chemical and ExxonMobil visit ICIS company intelligence
Paul Hodges studies key influencers affecting the industry in his Chemicals and the Economy blog
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By: Ben DuBose
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