Global auto sector is in growth mode, and will drive chemical and polymers demand

09 January 2012 00:00  [Source: ICB]

The chemical and auto industries closely rely on each other, and despite the aftermath of the recession, growth is expected - often in unexpected areas

The automotive sector is a heavy driver of chemical and polymers demand. Prospects for vehicle manufacturing and greater use of these materials are on the upswing.

Pic credit: Porsche

Light vehicle applications account for more than 30% of demand for resins such as polypropylene (PP), polyurethane (PU), nylon, other engineering polymers and thermoplastic polyesters. For specialty resins such as polyvinyl butyral, used in safety glass, automotive applications are responsible for 85% of demand. As of 2010, every light vehicle produced in the US contained $3,297 (€2,528) of chemical products and chemical processing, up by 10.5% from 2009. "It's up 92% since 2000, when it was $1,717 per vehicle," says Kevin Swift, chief economist of the US-based trade association American Chemistry Council (ACC).

The US and Canada assembled 9.66m light vehicles in 2010, representing $31.8bn in chemistry, the ACC said. When 13.08m units were assembled in 2007, the chemistry value peaked at $34.8bn, but with only 7.02m units assembled in 2009, after the start of the global economic downturn, the value was $21bn. The average light vehicle contains 378lb (171kg) of plastics and composites, 9.4% by weight. This is up from 286lb in 2000 and 194 lb in 1990, says the ACC. In 1960, less than 20lb was used. "Each pound of plastics and composites, for example, supplants two to three pounds of other, heavier materials," says Swift.

BUILDING TRENDS
Chemical companies expect their contributions to auto manufacturing to grow. "We believe the growth of polymer materials will continue as the automotive industry drives to improve the energy efficiency of vehicles" including the further development of lightweight concepts to improve fuel economy, says Bruce Benda, vice president, automotive and transportation, for Germany-based Bayer MaterialScience (BMS).

The automotive and transportation industry is the largest sector served by BMS, accounting for 20% of sales in 2010. BMS posted total sales of €10.2bn ($13.3bn) in 2010.

"Climate change, legal requirements and increasing environmental awareness are presenting the automotive industry with new challenges," says an executive with Germany-based BASF. Automotive accounts for up to 15% of BASF's total sales - about €7.9bn in 2010. A major challenge for the automotive industry is a transition to "cleaner and greener," says Udo Erbstoesser, corporate communications director for Germany-based chemical firm LANXESS, "especially as now the populations of the emerging countries will increase their participation in individual mobility as well."

In 2010, 15% of LANXESS total sales of €7.1bn were auto related. While the market has yet to completely accept them, hybrid vehicles will influence change, chemical providers say. BASF says electromobility will play a major role, especially in congested areas. "Innovations from chemical research and the right energy mix will be key factors in helping electromobility to make its breakthrough - while remaining sustainable," says the BASF executive.

For the chemical industry, the largest challenge will be hydrocarbon and energy volatility. "The changing political environment in the Middle East and Northern Africa coupled with unexpected global events continues to create scenarios that are difficult to plan and manage throughout the value chain," says John Lemanski, business intelligence manager for US-based Dow Automotive Systems (DAS), part of Dow Chemical. Sales into the automotive industry through DAS account for less than 5% of Dow Chemical's annual revenue. In 2010, Dow had sales of $53.7bn.

US-based Plunkett Research sees US cars and light truck sales in the 12.2-13m unit range for 2011. Several chemical firms have noted pent-up consumer demand and the increasing average age of the fleet, now up to 10 years.

"US consumers who are employed are feeling a bit better about purchasing big ticket items, but overall consumer confidence is marginal at best. Spending levels have risen, but with savings rates in decline, high growth is not anticipated," says Lemanski. "The new normal is uncertainty and the lack of stability in economic recovery can create demand shifts month to month."

EUROPE CAR SALES TO DROP
There is not as much reliance on personal autos in Europe as in the US. In December, UK-based forecaster LMC Automotive revised its projections downward for 2012, and expects sales to drop almost 5.1% to 12.15m vehicles. For 2011, LMC estimates the western European car market to dip 1.4% to 12.8m vehicles versus nearly 13m in 2010. However, Erbstoesser is optimistic Europe will return to positive numbers in 2013 "with a sound growth" in 2014. Globally, 75.9m light vehicles are expected to be assembled in 2011 - up nearly 6% from 2010, according to forecasting service Autofacts.

For 2012, BMS projects light vehicle production to grow another 6% to reach more than 81m units. "The 100m mark is anticipated to be eclipsed in 2015," says Benda. By 2018, light vehicle production is expected to increase to 115m units, notes BASF, with Asia providing "close to 50% of the global car production." US-based Zacks Investment Research, said about 10 global automakers account for more than 77% of production worldwide, while 13 automakers account for more than 90% of total vehicles sold in the US. There were about 250m vehicles in use in the US, notes Plunkett Research, out of about 1bn cars and light trucks globally in 2010.

BRIC GROWTH
Car production growth is shifting towards emerging markets such as Brazil, Russia, India and China (BRIC). "Global suppliers such as BASF are affected by the regional shift in car production," says the BASF executive. "OEMs [original equipment manufacturers] expect their suppliers to be where they are, which means that the focus is clearly on Asia and the BRIC nations [where] growth rates are calculated to be significant."

Canada-based Scotiabank Group estimates Brazil may become the world's third-largest car market by 2016, topped only by China and the US. BMS expects Brazilian production to grow by about 12% in 2012 to reach 3.6m units. "The Latin American market for new cars has been growing steadily and is expected to continue that growth in 2012," says Benda.

"At the same time, supporting growth in the new economies remains a challenge, taking into consideration the requirements of these regions and how they vary from the mature economies of North America and Western Europe," says Lemanski.

MOVING PRODUCTION
The biggest upward trend in auto sales has been in China, where government stimulus helped dealers sell 13.6m units in 2009 and an estimated 14m in 2010, notes Plunkett. The China Association of Automobile Manufacturers says its members made 18m units in 2010. BMS says China's auto market will keep growing above or around 8% a year for the foreseeable future, and become the largest car market globally in the next few years.

Automakers were seriously affected by the disasters in Japan and Thailand, which led to cuts in production. Major Japanese automakers such as Honda, Toyota and Mazda, US-based Ford and Germany's BMW and Daimler all have facilities in Thailand. Although overall Japanese output is expected to rise in 2012 by more than 15%, BMS says, major Japanese automakers have announced plans to shift more production outside Japan.

"OEMs will continue to evaluate supply chain risks," says Tim Boven, DAS's global product director for performance solutions and adhesives. A balance of production for suppliers and OEM production within disparate regions will be considered, he notes.

"As Toyota and Honda production come back on line, [other] OEMs that have ramped up production in 2011 to increase market share now have to watch to see if consumer demand for their products will continue to grow or if demand will shift back to Japanese OEMs, leaving those OEMs with higher inventory," says Boven. "It will all depend on how aggressive Toyota and Honda will be to win back market share."

By: Ivan Lerner
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