Stalled automotive sector puts hopes on China, decrease in air travel

LONDON (ICIS)–The pandemic has left the automotive industry on cinder blocks, thwarting any expectation of recovery from an already-slower 2019.

Tyre demand has been lacklustre in Asia, while in Europe prices for styrene butadiene rubber (SBR) hit record lows in May in line with caps on automotive production.

Prospects for SBR were not much stronger in the US, as even though plants begin to resume operations, production will not run at full capacity and demand remains weak.

Historic correlation between unemployment levels and sales of new passenger cars and light trucks in the US by financial analysts at ING Bank shows that the impact of the coronavirus could worse for both factors than the 2008-2009 financial crash.

With strict lockdown measures only beginning to ease across Europe, output has been capped in a similar fashion, with production of around 2.4m vehicles lost so far, with Germany recording the most significant impact.

Sales of passenger cars dropped throughout Europe in April as quarantine restrictions were at their most severe across the continent.

As global GDP is expected to contract by 3% in 2020, year on year, according to the International Monetary Fund (IMF), purchasing power of consumers is likely to remain constricted to essential purchases.

This is likely to shift trends in the automotive industry, with many who may have contemplated buying a new vehicle in times of more economic buoyancy opting to make do and mend instead.

REVIVAL IN THE SECTOR
Hopes for a recovery in the sector rest on demand recovery in China – as it had before the pandemic.

China was the first country to record significant impact from the coronavirus and has also marked the first economic recovery, with lockdowns lifting throughout the country.

“While light vehicle sales had fallen by 18.6% year on year in January, February saw the biggest fall ever recorded in the time series, with sales contracting by 79.1%,” said Inga Fechner of ING.

“Nevertheless, April sales recovered with light vehicle sales crossing the 2 million vehicle mark compared with sales of only 1.4 vehicles the month before, increasing by 4.4% year on year thanks to an uptick in commercial vehicles.”

As lockdown measures in the rest of the world begin to ease, then demand for fuels are likely to increase as there is a surge in people travelling.

The decrease in air travel post pandemic, with aviation suffering from blunted demand until 2024 at least according to the International Air Transport Association (IATA), will in turn cap demand for jet fuel.

Although not all players in the automotive sector stand to benefit from this, there could be room for some aspects of the industry benefiting from this changing trend in travel.

Fuel providers may benefit from increased consumption as customers opt to drive to holiday destinations, as will those providing parts for automotive repairs as vehicles endure more use.

As lockdown regulations are slowly lifted across the globe, even tyres will start to get more wear and tear again.

Focus article by Morgan Condon

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