OUTLOOK: Europe’s auto sector gripped by supply chain woes

LONDON (ICIS)–Growth in the automotive sector looks set to be stunted over the second half of 2021, as clogged supply chains prevent the industry from meeting demand.

CHEMICALS DEMAND IN AUTOMOTIVE SECTOR
This has rippled upstream into buying patterns in the chemicals industry, weighing on demand at the beginning of the third quarter.

This has not been universally felt across Europe’s chemicals industry. One cyclohexane (CX) producer is noting more demand from the construction sector than the automotive industry in Cyprus as consumer demand for plots of land trumped that for new cars.

In particular, the shortage of semiconductors and chips is capping output of vehicle operating rates, which has been reflected upstream.

“Overall demand is still strong, but for automotive it is a little bit weaker” said one large buyer of acrylonitrile (ACN).

“We assume it is the semi-conductor and chips shortage kicking in.”

Some softening was also noticed in the nylon market in relation to the semiconductor shortage, with some volumes postponed in line with decreasing production.

Overall expectations are that buyers will catch up with these volumes later in the second half of the year. This means the market may only notice a decrease over summer, but this is not guaranteed as long-term visibility remains poor.

A quick recovery is not guaranteed, however as the semiconductor market could remain structurally short for a longer period of time, with concerns that the situation may not be resolved even in 2022.

BASF CEO Martin Brudermuller expressed his concerns about the shortage of semiconductors at the German major’s second quarter results announcement. Brudermuller said he thought the problem could be more severe than previously anticipated.

Constrictions in the automotive sector have eased tensions for some producers of isocyanates and polyols, with polyurethane (PU) foam used in vehicle applications.

One isocyanates player said: “It’s made it easier that it’s slowed down.”

SHIFTING MACRO MARKET DYNAMICS
The lack of available semiconductors may change production preferences in the automotive industry to try and keep pace with demand.

“The semiconductor issues might balance the situation. Some car manufacturers make cars without chips and store them,” said one polybutylene terephthalate (PBT) producer.

“Chip will impact production figures somehow. We will see some changes in registrations but we don’t see production issues.”

This may be out of kilter with consumer behaviour, as the preference for electric vehicles continues to increase, according to the European Automobile Manufacturers’ Association (ACEA).

Although still small, market share for electric vehicles (EVs) and hybrid cars is ever-increasing, in line with rising environmental concerns, with further growth expected to continue.

For this change in transport to be viable, the ACEA has highlighted the need for increased support for infrastructure across the region, or risk it becoming a two-tier system over the long term.

These infrastructure concerns will need to be addressed not only for passenger cars, but also for commercial vehicles.

Trends for this market have also changed over the first half of 2021, as kinks in the supply chain have led to increased demand for a range of commercial vehicles across Europe.

This could support increased demand in the automotive sector, but this may not be sustained as there is a shortage of drivers impacting the industry.

Employment and sustainability are sure to remain key features of the automotive industry over the long-term.

These factors, however, are not enough to refocus the industry’s overarching concern about supply restrictions, which will continue to shape market fundamentals over the second half of 2021.

Focus article by Morgan Condon

Additional reporting by Zubair Adam, Vicky Ellis, Marta Fern and Jane Massingham

Thumbnail picture: A Skoda plant in the Czech Republic. Source: Slavek Ruta/Shutterstock