News Focus: Europe's automotive and construction markets show cracks, hitting chemical sector

04 June 2012 00:00  [Source: ICB]

Cracks are showing in Europe's industrial sector, with falling sales and plant closures. This bodes ill for the chemical sector

Slowing tire sales, low epoxy resins and polycarbonate (PC) demand and the closure of several glass furnaces in Europe may be the first signs that all is not well for the European chemical industry.


 Europe tire demand shows no signs of gaining traction

Copyright: RexFeatures

So far during the second quarter of 2012, truck tire sales have fallen by up to a third compared with the same period last year, while small-vehicle and passenger-car tire sales have dropped by as much as 15%, industry experts said.

High feedstock butadiene (BD) costs have led to higher styrene butadiene rubber (SBR) prices, which in turn has pushed up tire prices at retailers.

As a result, many consumers have been putting off replacing tires, while others have given up driving altogether because of high fuel prices. In addition, less trade between European countries means fewer truck journeys, reducing the number of worn tires that need replacing. The tire industry consumes 70% of SBR output.

From February to April, the price of 1500-grade SBR increased by €210-235/tonne ($266-297/tonne), but declined by €45-60/tonne in May. The May monthly contract price of 1500 grade SBR is €2,690-2,750/tonne free delivered (FD) Northwest Europe (NWE).

The price of 1723-grade SBR increased by €195/tonne from February to April, but decreased by €45/tonne in May, to reach €2,450-2,500/tonne FD NWE. The price of 1783-grade SBR followed the same price trend and settled at €2,400-2,450/tonne FD NWE.

The spot prices of 1500-grade SBR fell dramatically in the two weeks up to May 23, from €2,600-2,700/tonne FD NWE to €2,400-2,500/tonne FD NWE.

The sharp decline in prices is a result of lower feedstock costs and weak demand from tire manufacturers, which have retreated to the sidelines in expectation of further price drops.

The fall in tire sales has forced many tire makers in Europe to lower output. This includes Michelin, which has cut shifts at its plant in Bad Kreuznach, Germany. Italy- and France-based tire producers are also considering cutting, or have already cut, working hours in an effort to reduce output.

Other industries are also showing signs of a slowdown. Several flat-glass manufacturing furnaces in the UK, Belgium and Italy have been mothballed or closed down on weak downstream demand. Flat glass is used in the construction and automotive industries.

One of the furnaces that closed in mid-April is owned by Pilkington in the UK. The second furnace closed down in February in Belgium and the third in March in Italy, both owned by Asahi Glass. The companies said they had to close them because of weak demand from the construction and solar energy sector.

Demand for soda ash, a raw material for glass production, is balanced to long and soda ash producers say the closures have not affected demand so far because these furnaces were old and needed to be replaced with more efficient ones.

However, glass producers said demand is considerably lower than last year, especially from the construction sector, and this is not expected to change this year.

In 2012, the best-performing soda ash derivative market is the packaging glass sector, where demand is mainly driven by major sporting and public events, such as the Queen's Diamond Jubilee celebrations in the UK and the Euro 2012 football tournament, during which glass bottle sales go up.

The PC sector, another major supplier to the automotive and construction industries, is also cooling. According to market participants, most PC producers are running their plants at about 70% capacity, which is below average. This was contradicted, however, by a large producer that said a 70% utilization rate is pretty good and that there is nothing that indicates that demand is slowing.

However, feedback from PC buyers was different. They said the PC market is long and that suppliers are keen to offer lower-priced lots to maintain sales volumes. There has also been talk of imports from Asia and the Middle East, where competitively priced material can be purchased.

Demand for PC from the southern European automotive sector is especially weak and the volatility in the financial markets and the eurozone debt crisis are making things worse, several car-part suppliers said.

Buying interest for PC from the construction sector, similarly to the soda ash market, is down. This is especially worrying because the second quarter is the peak season for PC consumption, sources said.

Sales in the epoxy resins industry that supplies the automotive, wind energy and construction sectors have contracted as well. According to several industry sources, demand for epoxy resins in the second quarter is down by about 10-20% compared with the same period last year.

"Considering that this is the peak season for the industry, this is very bad news for us," an epoxy resins buyer said.

By: Janos Gal
+44 208 652 3214

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