Price and market trends: Chemical suppliers to autmotive sector express caution

26 October 2012 08:50  [Source: ICB]

As car sales are declining and even high-end car makers that so far seemed immune to the economic downturn are considering cutbacks, original equipment manufacturers (OEMs) are becoming concerned about the future, sources said.

car show room Rex Features

Rex Features

New car registrations in the EU have fallen for 12 months in a row, according to the European Automobile Manufacturers' Association

Polycarbonate (PC), epoxy resins and styrene butadiene rubber (SBR) market players and suppliers to the automotive and construction industries forecast no improvement for the next five to six months and believe it is doubtful the second quarter of 2013 will be any better unless the European economy recovers.

"Unless there is a miracle, nothing will improve until the second quarter next year, but even then it is doubtful because the economy is in such bad shape," an SBR producer said.

Statistics show continued decline in both automotive and construction output.

New car registrations in the EU fell for the 12th consecutive month in September, data from the European Automobile Manufacturers' Association (ACEA) show. ACEA said that in September, 1.09m new passenger cars were registered in the bloc, down by 10.8% from the same month in 2011.

What surprised many is that car registrations have declined by 10.9% even in the powerhouse of Europe, Germany. According to German chemical major BASF, construction output in Portugal and Spain is down by 50% from pre-crisis levels and investment in Greek construction has fallen by 60%. BASF added that the Italian construction industry has been weak through 2012.

Because chemical demand is largely influenced by the construction and automotive industries, a drop in output in the latter can have a serious effect on chemical suppliers and OEMs.

AUTOS UNDER PRESSURE

As car sales are falling, car producers have come under increased pressure to cut costs. Mid-category car makers such as Renault, Peugeot, Ford, GM and Fiat are all in bad shape because European consumers cannot afford to buy new cars.

EU SBRAs a result, French producer PSA Peugeot Citroen announced earlier this year plans to close at least one plant in France and cut its workforce by thousands. Italian automaker Fiat has sent its workers home on prolonged holidays for several weeks in July, September and October to cut output.

For some time, many thought the downturn only affected cheaper cars as high-end models were selling well, but this trend seems to be turning now.

Not long ago, Mercedes, Volvo and Volkswagen announced plans to reduce costs in an effort to become more competitive in a tougher business environment.

Late September, Reuters reported that Germany-based Daimler, the owner of Mercedes, was looking at reducing costs by €1bn ($1.3bn), casting doubt on the achievability of 2013 sales targets. Swedish automaker Volvo is reported to have reduced output from 57 cars/hour to 52 cars/hour.

This is cause for concern for many suppliers to the auto industry, including tyre makers and plastic part producers.

"Our demand from a major auto manufacturer was down about 10% in September and construction demand is pretty bad too, and we expect this trend to continue this year," a parts supplier to the auto industry said.

The same source thinks car makers will shut down for prolonged periods in December and probably even in January because demand for cars is so poor in Europe.

PC AND SBR TAKE HIT

A major PC buyer that supplies the construction sector said that in October it halved its PC purchases and its sales dropped by 20% compared with September, and by about 10-15% compared with October last year.

The picture is not much better in the SBR market. SBR is mostly used by the tyre industry and tyre sales have fallen significantly this year because people drive less as fuel prices have gone up.

Industry sources said replacement car-tyre sales have declined by 10-20% compared with last year, with the greater declines in southern Europe. Replacement truck-tyre sales are down 20-40%, with a similar geographic split.

As car sales are forecast to continue to fall and economic data show no signs of improvement, plastics and tyre producers are in for a rough ride.

"For us, things are simple. We are waiting for the first snow in Europe. The sooner it falls the better things will be," a tyre producer in Germany said.


By: Joseph Chang
+1 713 525 2653



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