FocusPSA's plant closure to have negative impact on chems

12 July 2012 17:09  [Source: ICIS news]

LONDON (ICIS)--PSA Peugeot Citroen’s plans to close an assembly plant in France, will have a serious impact on chemical companies which supply plastics, rubber and glass parts for car manufacturers, sources said on Thursday.

French carmaker PSA announced it would cut 8,000 jobs and close one of its assembly plants in Aulnay, near Paris, as part of a €1bn ($1.22bn) savings programme.

A PSA spokesperson said: "The project presented today is that production will stop at our Aulnay site with manufacturing being then centred at our Poissy plant [near Paris]. At Aulnay, the site will be converted for industrial and automotive activities.”

“At the moment we are burning €200m cash a month so now we would like to stop it and get back to breakeven levels by the end of 2014, as we do not believe market fundamentals will change," PSA's spokesman said.

"We are being realistic in our approach, although we do not deny the market will remain tough," he added.

Although the effects of the closure will not be felt immediately, it is very likely that from the end of the year, automotive-part suppliers will feel the pinch as other car-makers probably follow suit and reduce output, a polycarbonate (PC) headlamp producer said.

One PC buyer said: “I expect [other] car makers will shut down for prolonged maintenances around Christmas because the market is oversupplied and output will have to be reduced.”

Most sources agreed that the fundamental problem is that demand has declined far more in 2012 than anybody had anticipated. Coupled with high feedstock costs, suppliers to the automotive industry are now struggling, which will also have a negative impact on upstream markets.

To drive sales up, car manufacturers in Europe have begun incentives to encourage consumers to buy new cars.

Italian car-maker Fiat's latest initiative offered consumers €1/litre petrol for three years if they bought a new car in June or July in Italy.

"I think it shows how desperate Fiat is to increase sales and it remains to be seen how effective this strategy is," a PC buyer said.

New car registrations are expected to decrease by about 7% in 2012 compared with 2011. Sales are expected to drop from 13.1m last year to 12.2m this year, according to data from the European Automobile Manufacturers' Association (ACEA).

It is estimated that about 4-7kg of PC is used in each car for headlamps, switches, rooftops and other parts, a PC-part supplier said.

"The outlook for the European vehicle market in 2012 has further worsened due to the challenging economic situation in many of the EU member states. Though not all manufacturers are affected to the same extent, vehicle production in Europe is likely to decline as well," Cara McLaughlin, spokesperson for ACEA said on Thursday.

The industry has proven to be extremely resilient in recent years, but optimising competitiveness is key in an increasingly globalised world, McLaughlin added.

It isnot all doom and gloom. Most car manufacturers expect growth in emerging markets, such as China, India and Russia.

"It is clear that growth in the next ten years will be outside of Europe, in emerging markets such as China. We are in the process of globalising our production by adding two new plants in China," PSA said.

However, with falling car sales and dwindling consumer confidence it is clear the automotive industry, and its suppliers, are in for a rough ride in coming years.

Car makers are not the only ones cutting working hours. Tyre
manufacturers are also struggling as a result of falling car sales and declining replacement tyre demand.

According to industry sources, replacement car and small vehicle tyre sales have dropped by 10-15%, while truck tyre sales are down by 30-40% in May compared with the same period last year, depending on region of Europe.

Flat glass manufacturers are also facing an uphill battle. Although most of their demand comes from the construction industry, a dip in sales from the automotive sector can have a negative influence on their earnings.

Coating and paint demand has also declined significantly since last year, mainly driven by falling sales to the automotive and construction sectors. Producers and buyers of epoxy resins and titanium dioxide, main ingredients for paints and coatings used to protect the body of a car, have said demand for their products has fallen by about 15-20% so far this year.

As a result of slowing downstream demand, chemical output is certain to fall. And with budget cuts and massive deficits, it is near certain that governments will be unable to step in to help ailing industries.

"Considering that most manufacturers are losing money in Europe at the moment, the industry needs as supportive and competitive a framework [as it can get]. The EU needs to urgently refocus on its industrial future and address the fundamental issues that constrains the region’s competitiveness in a global perspective," said McLaughlin.

($1 = €0.82)

By: Janos Gal
+44 208 652 3214

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