Europe’s auto industry shaped by ships and chips, chems more buoyant

Author: Morgan Condon


LONDON (ICIS)--The interplay between the European automotive and chemicals industries has arrived at an interesting juncture in early 2021 as the causal link between fundamentals now appears disconnected.

As a key downstream sector for chemicals producers, interplay with raw material dynamics and demand for new vehicles is a common thread, with stronger automotive demand potentially pushing up the value of raw materials

But now, the chemicals industry has diverged from what the auto industry is experiencing and expecting in the near term: European car production is slowing down, but feedback from the European chemicals sector is that demand from the automotive industry is thriving.

“Autos demand is going crazy. I can't find the materials to produce, can't find materials and completely booked out for next few months,” said a virgin and recycled polyethylene terephthalate (PET and R-PET) trader.

R-PET flake is predominantly used in the automotive industry to produce fibres of car seats.

Players in the European nylon market, used for carpeting in cars, have expressed similar sentiment.

The ACEA is anticipating 10% growth from the largely coming from the second half of the year, with the first quarter expected to drag on sales.

Typically, this is attributed to the draw of the export market, with China usually accounting for a large portion of market share, but several factors indicate that this is not what is steering the market.

The Chinese market following seasonal patterns – despite any disruptions caused by the pandemic – and appetite is cooling off ahead of the Lunar New Year on 11 February.

Furthermore data from German research group the Ifo Institute stated that the nation’s auto makers are not expecting a pick up in export demand in the coming three months.

Official data confirms that in Germany both production and export orders fell in January, with domestic demand frozen by further lockdowns.

As end-user demand is scant, it seems that supply along the value chain is driving momentum for materials used in vehicle manufacturing, and there are several factors helping to shape the market.

The global shortage of microchips has been a key factor in slowing  automotive production and is impacting dynamics in a multitude of other industries, including the electronics market.

Original equipment manufacturers (OEMs) have marked an impact on supply chains, which has weighed on coolant consumption.

Ford’s assembly plant in Saarlouis, Germany  is reportedly stopping production for an entire month in response to the chip shortage with Audi, Toyota and Honda UK also said to be experiencing similar issues accessing parts.

This is consistent across the chemicals industry, with market participants feeling an impact because of the microchip shortage.

One polypropylene (PP) producer in Europe has even welcomed the slowdown in automotive production caused by the lack of chips, as it has allowed them to deal with tight supply in their own market.

For polycarbonate (PC), demand has eased since the fourth quarter 2020, but demand has been rocked by the chip shortage.

One PC producer anticipates the slowdown to become more pronounced through February and into March, although as a change to lockdown policies across Europe may boost demand.

A supplier of polyurethanes (PU) foams for automotive applications tracked weaker demand in January because the chip shortage has slowed production.

The PU supplier advised that OEMs projected a four to six week span from the beginning of February of weaker demand from for car seats and foams, but that the problem varied depending on region, with France particularly affected.

This has also been cited as a potential driver on the acrylonitrile butadiene styrene (ABS) market – with the potential threat of semi-conductors also going short also discussed.

Shortage of electronic equipment could continue to impact car output this year, but there are other factors influencing the market dynamics chemicals and plastics used in automotive applications.

As demand ticked up at the end of last year, there was some discussion on the ABS market that OEMs may be replenishing inventories to avoid a wave of price increases that could be on the horizon.

Others disagreed with this sentiment, arguing that as sales were currently depressed, stocks of completed vehicles would likely be ample at this time, which will characterise buying sentiment in March.

Although export demand is lacking, opinions are divided about whether a tight supply of imports could be responsible for some of the pressure on European auto dynamics.

One acetone buyer attributed exceptionally strong downstream demand to a lack of material coming in and anticipates that this could be the dominant factor shaping the market in the first quarter.

“Moulders are really trying to meet demand, mainly for new cars going directly to OEMs and it's not possible…It makes me happy but I'm afraid we're surfing a bubble. This bubble is not going to burst until Q2,” it said.

One fibre supplier stated that automotive demand has remained strong since September and, while a lack of ships from Asia was expected to drag on the market, it has not experienced this, with residual demand in Europe.

Even before the pandemic, fundamentals on the automotive industry were in flux.

Attitudes towards car ownership are changing and could act as significant cap on the market in the future as sustainability remains a priority in consumer consciousness.

The outbreak of the coronavirus has only accelerated demand for greener cars, with the ACEA reporting that market share for hybrid and electric vehicles tracked significant gains last year.

“Demand for mixed coloured flake is mostly automotive, as factories have orders for new gen of electric cars to be delivered to the market in 2022, and some limitation for normal cars regarding emissions from Jan 2022,” said one R-PET flake producer.

While there may be continued near-term hairpin turns in supply and demand fundamentals for OEMs, chemicals producers are confident of resilience in other market segments supporting sales until the automotive industry stabilises later in the year.

Insight by Morgan Condon

Additional reporting by Marta Fern, Melissa Hurley, Fergus Jensen, Linda Naylor, Miguel Rodriguez Fernandez, Matt Tudball and Stephanie Wix

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Thumbnail picture source: Xinhua/Shutterstock