Automotive sector decline in 2020 as pronounced as 2019, chems weak – BASF CEO

Ludwigshafen, GERMANY (ICIS)–The decline in automobile production is likely to be as pronounced this year as in 2019, the CEO at BASF said on Friday, while no immediate rebound is expected for the Germany-headquartered chemicals major’s chemicals operations.

Global automobile production contracted 5.4% year on year in 2019, and the slump is expected to continue or deepen this year, Brudermueller said, as a result of lower demand, extended production downtime in China, and disruption to the sector’s complex global supply chains.

“For the automotive industry, one of our most important customer industries, we anticipate a production decline compared to the already-low level of 2019,” he said, speaking to reporters at the company’s Ludwigshafen headquarters.

The automotive sector accounts for 15-20% of BASF’s sales, and there has been talk of demand drops of up to 90% in China during the first couple of months of the year as a result of coronavirus-driven quarantines and public health anxiety.

Automotive sector production is based on tightly integrated “just-in-time” supply chain networks, meaning that outages in China could have a noticeable effect on production elsewhere, according to Brudermueller.

“In automotive, one line cannot work in Europe because a supply chain [link] in China is missing,” he said.

“We think it will affect the whole portfolio … If the value chain is disrupted you will see more effects. This will affect individual customers because we don’t know who is using components that come from where, this is not transparent.”

The expected continued contraction of the automotive sector come at a time of basic chemicals weakness for BASF and the wider European market.

Combined chemicals and materials division earnings before interest and taxes (EBIT) before special items fell €2.2bn year on year in 2019 to €1.8bn, with the sharp drop in isocyanates pricing, weaker cracker margins, and bearish demand all weighing on the division.

With substantial new commodity chemicals capacity coming onstream in the US Gulf Coast and the country’s trade war with China continuing to disrupt flows to Asia, cheap product is pooling in Europe.

One chemicals executive recently described the situation to ICIS as a “battleground”, pushing margins for many value chains to the lowest levels in years.

“If you start with the crackers, there is a lot of capacity in the US, in a market which is growing far less than the capacity additions,” Brudermuller said.

“In most of the lines there is more additional capacity than can be absorbed into the market. That is nothing that is going away this year. This could be a longer period for one to three years, depending on what it is,” he added.