ICIS pricing reporters from Europe examine key chemical markets serving the automotive sector

01 October 2009 16:35  [Source: ICB]

Chemical markets serving the automotive sector have enjoyed quite a strong rebound in demand and pricing during the second half of 2009. Players are now waiting to see whether the recovery is sustained or just a result of the various "cash for clunkers" programs in Europe

 Rex Features

Truong Mellor/London

Sentiment in the European polybutylene terephthalate (PBT) market has improved markedly since the slump at the beginning of the year, with government subsidies helping to boost demand in the automotive sector. While some have described the market as increasingly bullish, there are buyers and sellers who have expressed concern regarding the sustainability of this upturn.

The reason for this caution is the precarious nature of demand from the automotive sector, according to numerous sources. Both buyers and sellers note that subsidy programs have boosted PBT demand, but say that it remains difficult to predict where the market will be by the first quarter (Q1) of 2010 when these incentives run out.

Ideas regarding where the market will be by the end of 2009 are mixed. An engineering plastics distributor says order patterns have begun to stabilize in Q3, and it now has orders for the next two to three months - an indication that buyers are adopting a more long-term approach.

However, other sources are less sanguine. "Every month until August - when we saw the traditional summer slowdown - was a little bit better than the last," says one PBT buyer. "But the outlook is as uncertain as it has ever been. September will be an important litmus test for the market, as it will determine the strength of Q4."

Another buyer adds: "We are seeing quite a spread within the auto sector. PA [phthalic anhydride] compounds for smaller cars are doing fairly well, but demand for medium-sized and larger luxury models is still struggling."

Despite the firming of demand, PBT prices have remained stable. While there has been a significant pick-up in buying interest since Q2, as well as upward pressure coming from higher butanediol (BDO) costs, many suppliers feel that price increases at this juncture would work against improving demand levels.

This could partly be attributed to the reluctance of many consumers to rebuild inventory levels in the light of uncertain demand from end-use markets. Despite the current upturn seen in the automotive industry, a handful of sources express reservations about whether the stronger volumes being seen now will be sustainable in the long term.

Despite upward pressure coming from feedstock rises, one buyer felt that increased competition was keeping a lid on price ideas in the PBT market. The buyer says: "The upturn we have seen since Q2 has been due to a shift of volume in the market as end-users shop around, rather than any major improvement in market fundamentals."

Heidi Finch/London

In early 2009, European polyurethane (PU) demand for automotive applications dropped on average by 40%, following the crash in Q4 2008 and car manufacturers ended up with high inventories, according to Jean-Michel Duplouis, plastics product director Europe/IMEA, at US-based Dow Automotive Systems.

"The aim at the start of the year was to deplete high stock levels and this resulted in car plant closures mostly in quarter one 2009," says Duplouis, who adds: "From [around] May 2009, demand has been recovering to some extent due to various European government auto stimulus packages and is now estimated to be down by 20-25%."

However, this figure varied, according to vehicle size, according to other PU market players. "Government incentives are spurring on demand for smaller and average-size vehicles," says another isocyanates supplier.

"Demand is not even - the government support is for smaller vehicles, which use less polyurethane [due to size and more basic features compared to larger vehicles]," notes one producer. The market for sales of larger vehicles, particularly trucks, was seen to be most affected by the softer economic climate and had only seen a minor improvement from a lower level than for its smaller-size counterparts, according to PU participants.

However, the question remains: will the improvement in automotive demand be sustainable, particularly as it seems to be strongly linked to temporary subsidies.

"We do anticipate an effect. Possibly next year's sales of vehicles in Western Europe will be reduced slightly, but this will possibly be balanced by expected slight growth in Eastern Europe," says Duplouis.

"Every month until
August was a little bit
better than the last"

PBT buyer

One customer says it has seen a "jump start" in automotive demand due to scrappage schemes such as in the UK, but thinks that the recovery will be short-lived, as the schemes come to an end. "Once you have bought a new car, you won't need to buy one again soon," says the same source.

So the question remains: Is the modest improvement purely some restocking or a more promising fundamental uplift in demand? Only time will tell.

PU foams consisting of methyl di-p-phenylene isocyanate (MDI), toluene di-isocyanate (TDI) and flexible polyols are mainly used in the production of car seating, arm and head rests and steering wheels. Other PU outlets include headliners, types of insulation and bumpers.

Peter Gerrard/London

Two derivatives of the petrochemical industry that are substantially exposed to the automotive industry are styrene butadiene rubber (SBR) and the polymer polycarbonate (PC). During 2009, both have felt the impact of the sharp recession.

While both materials have a wide range of applications across a number of downstream sectors, SBR is especially dependent on trends in automotive industry activity because the great bulk of output goes into the manufacture of tires. This has therefore been a particularly traumatic year for SBR. Compensating for this heavy dependency, of course, is the more comforting consideration that synthetic rubber has no effective competition in this market.

A second factor that has helped to lessen the effect of the slump in new vehicle production is the fact that tires eventually wear out and have to be replaced, usually, in Europe, as a strict legal requirement.

Although consumers may have deferred purchase of new cars as a response to the recession, if they continue to drive their existing cars, they must still buy new tires. Players in the SBR industry say that typically, two-thirds of tires for passenger cars are manufactured for the replacement sector. This year has been anything but normal, however, and the proportion may have edged up slightly.

In the truck and commercial vehicle sector, the story is different, and distinctly bleaker. Here, the ratio of new vehicle to replacement tires is reversed, with the latter representing only about one-third of total sales. By late summer, sources on both sides of the SBR market reported that there were still no signs of anything but a feeble recovery in volumes for commercial vehicle tires.

No government incentive programs comparable to those launched in the car market have been enjoyed by truck manufacturers. Furthermore, earlier in the recession, haulage companies may have responded to the slowdown by taking some vehicles off the road and transferring tires from idled trucks to ones still in commission.

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