Global June IBAP falls but steel price outweighs auto cost savings

LONDON (ICIS)–The Global ICIS Basket of Automotive Petrochemicals (IBAP) fell by 0.87% in June, ICIS analysis showed on Wednesday.

Nevertheless, automotive manufacturers are unlikely to see any overall cost benefit from this, as the cost of steel has spiked since the end of May due to investor ‘flight to safety’ amid global financial turbulence in the wake of and the build up to the UK’s shock vote to leave the EU.

Global IBAP falls were predominantly driven by drops in global polypropylene (PP) co-polymer prices, particularly in China and the US.

PP co-polymer import prices into China fell in the first half of June as suppliers sought to offload material. The PP price downtrend in Asia ceased in mid-June as traders were reluctant to drop prices further for June loading cargoes, amid expectations of a near-term price rebound. Domestic prices in China started to gain ground as converters and traders started to restock after the Dragon Boat festival (7-9 June).

Firming PP flat yarn futures, coupled with increasing international crude values in mid-June, also boosted market sentiment. Prices in southeast Asia trended up toward the end of June, following the bullish sentiment in the China market.

US June PP contracts dropped 6 cents/lb, marking the third straight monthly decrease because of a rising tide of imported material. The June cut brings contract reductions this year to 9.5 cents/lb and monthly prices a few cents below where they were at the same time last year.

Falling global prices also came amid volatile global financial and currency markets in the final part of June following the UK’s vote to leave the EU.

The Europe IBAP saw a very slight rise in euro terms, although prices fell in all three regions on average in US dollar terms, resulting from Exchange rate movements.

The Asia IBAP saw the largest price falls, and the US IBAP the lowest in US dollar terms – once again reinforcing Asia as the region with the cheapest petrochemical raw material production costs for automobile and parts manufacturers, and the US as the highest. The US IBAP is now $86.87/TTVW above the Asia IBAP, compared with $84.19/TTVW in May.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle. ICIS tracks the movement of petrochemical raw material costs in auto production both globally and regionally with the weighted ICIS Basket of Automotive Petrochemicals (IBAP).

ICIS produces a monthly Global Automotive report covering the major automotive chemicals markets, the auto-industry, the IBAPs and macroeconomic trends. For more information on the report and details on how to subscribe, please click here