LONDON (ICIS)--European chemicals companies in the polymers and catalysts sectors could take a hit from the EU’s “race to cut” carbon dioxide (CO2) emissions by 2021, Swiss investment bank UBS said on Monday.An old Volkswagen Ladybug converted into a 100% electric vehicle. Picture source: Mario FOURMY/SIPA/REX/Shutterstock
The EU has admitted its new CO2 emissions target will be implemented in a “shorter phase-in” period than the previous target, which according to UBS could negatively impact those companies within the specialty polymers segment, as well as the catalysts makers who have the engine sector as an end consumer.
The EU wants all cars manufactured by 2021 to emit CO2 at a levels of 95 g/km (grams/kilometre), a decrease from the previous 130g/km ruled out in 2015.
The EU has said that 95% of each manufacturer's new cars will have to comply with the limit value curve for the 95g/km target in 2020, increasing to 100% in 2021.
This quick push to lower emissions could prompt manufacturers to make smaller engines, therefore requiring less materials, as well as propping up the nascent electric vehicles (EV) market, where the decrease in materials is even more pronounced.
“[The EU’s] 2021 CO2 deadline could drive lower chemical content growth in mid-term … OEMs [Original Equipment Manufacturers] in the EU need to reach their target of 95g/km, but 2018 actual emissions are still [around] 25% above this level on average,” said UBS.
“Of course, OEMs can pay the fines, but it also has other options: 1) potentially incentivising smaller engine vehicles but this is difficult if the consumer is not pulling in that direction; 2) increasing plug-in hybrids which benefit from ‘super-credits’; 3) pushing harder on BEV [battery electric vehicle] roll-out.”
The bank went on to say that OEMs are actually being incentivised to “push hard” BEVs production, which would be the “key bridge” to reaching the EU’s CO2 required levels.
While the beginning of EVs caught European manufacturers off-guard, according to some automobile analysts, the region’s manufacturers, OEMs and chemicals companies have speeded up their investments into the sector.
The European chemicals bellwether BASF’s new CEO said in February the company aimed to tap into the market by becoming a key provider of battery materials.
One of those materials would be cathode, for which others companies in Europe are also ramping up production – like Belgium’s Umicore – although, according to UBS, this technology is still unproven to work in a massive scale.
Getting back on its feet after the 2015 diesel scandal, German automobile major Volkswagen (VW) is also investing in EVs, while within the chemicals sector specialty polymers producers like Germany’s Covestro and UK’s Victrex would be well placed to tap into EVs deployment, said UBS.
UK catalysts specialist Johnson Matthey has also ramped up investments catering to the EVs industry.
However, the ideal scenario of full compliance with the EU’s CO2 targets is quite unlikely. BEVs are still expensive and the more pessimistic analysts believe it will still take nearly a decade for EVs to be rule-out at a large scale.
A more realistic scenario, said UBS, may be more efficient internal combustion engines (ICE) and mild hybrids – ICE cars equipped with an electric machine to switch off the engine when coasting, braking or stopping – and full hybrids, which combines ICE and electric systems.
However, without a large-scale rule-out of BEVs, a substantial reduction of CO2 emissions will prove hard to achieve, said UBS.
“Mild hybrids, more efficient ICE cars and full hybrids will have limited influence on CO2 overall,” it said. Numerous stocks in our chemicals coverage (especially the speciality polymers and catalysts companies) would be impacted negatively by a greater push into smaller vehicles, whilst plug-in hybrids would be more neutral,” it said.
“Any boost to diesel market share from this CO2 target would benefit Johnson Matthey and Umicore, albeit the latest March 2019 data shows another drop in diesel market share in Europe to a new low of 33% (down 5.8 percentage points YoY [year on year] and almost 20 pp's from the peak).”
The automobile industry is a key industrial sector in the EU, with all major economies being also major automotive producers. The sector employs around 13.3m EU workers, or 6.1% of the employed population, according to the European Automobile Manufacturers Association (ACEA).