Semiconductor shortage persists, hurting automotive production, chemicals

Author: Will Beacham

2021/08/30

BARCELONA (ICIS)--The global shortage of semiconductors shows no sign of abating and is still badly impacting automotive production, as well as demand for some chemicals.

Since the second half of 2020, a sharp increase in demand for electronic goods and domestic appliances for the pandemic lifestyle has increased demand for computer chips to unprecedented levels, leading to acute shortages for all end-use markets.

The situation was made worse by automotive component manufacturers which cancelled orders for the chips earlier in 2020, when the pandemic led to a collapse in transport and demand for new vehicles.

Supply of semiconductors has also been constrained by the worst drought in nearly 60 years in Taiwan.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s third largest manufacturer, was forced to truck water to its plants; the company reportedly uses 156,000 tonnes/day of water, though more than 85% is recycled.

Heavy rains in early August have recently refilled reservoirs.

Adding further woes to supply of computer chips, in March 2021 a fire destroyed parts of a plant owned by Renesas, a major Japanese supplier.

With repairs still underway, production is still way below pre-fire levels while there is a growing backlog of orders from the automotive sector.

Click on image to enlarge

Click on image to enlarge

February’s US winter storm, and ongoing logistics and supply chain problems around the world, have also stifled supply.

There remains an extreme tightness and shortage of semiconductors for automotive manufacturers.

Many of them, including BMW, Volkswagen, Ford, Jaguar Land Rover, Renault and Daimler, have been forced to reduce production rates or temporarily stop their facilities since late last year.

NEW AUTOMOTIVE PRODUCTION CUTS
The automotive sector is still suffering from the semiconductor shortage.

In the US, the picture is mixed; last week, US automaker Ford said it is cutting production at three North American assembly plants, while Japan’s Honda is also cutting some production.

However, in July there was an 11.2% jump in US production of motor vehicles and parts as a number of auto makers trimmed or cancelled their typical July shutdowns.

Oxford Economics forecasts a rebound to pre-pandemic levels by Q4 for US autos.

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In Europe, there are expectations that the automotive sector situation will worsen in September as Toyota is planning to reduce production by 40% (around 40,000 fewer cars for the European market).

Meanwhile, other car manufacturers were heard to have further extended holiday breaks.

Toyota recently announced that it would slash worldwide vehicle production   by 40% in September because of the shortage, and Volkswagen also indicated it would curtail output.

In August, coatings maker PPG estimated that global car production was reduced by 2m in the second quarter thanks to the semiconductor shortage, causing a $100m sales impact.

PPG expects continued constraints in auto sector demand through this year.

According to Oxford Economics, the EU and the UK's motor vehicle production for the full year is forecast to decrease 15% year on year in 2021 from 2019.

However, registrations of electric vehicles (EVs) will continue to increase, said Jincy Varghese, ICIS demand analyst.

CHEMICALS IMPACT
Strong demand from many other end use sectors has propelled chemical company profitability through 2021, despite the problems in automotive.

Constrained supply across some chemical value chains has kept margins high.

Covestro, for example, said in August that tight supply and demand conditions would propel full year earnings to the top of its forecast range.

"Demand is very strong despite all the negatives that you hear, such as shortages in the automotive industry, supply chain disruption," said CEO Markus Steilemann.

"Automotive industry demand is still higher than the industry can supply.”

But in some product groups there has been a noticeable impact.

In Europe, consumption of cyclohexane (CX) is being hurt by lower demand for automotive manufacturing.

A buyer in Europe’s acrylate esters market is pessimistic about automotive demand, forecasting "the bubble is going to burst” and demand will weaken in Q4.

Demand from automotive is also less robust than other sectors in Europe’s caprolactam (capro) market.

Also in Europe, flexible slabstock conventional polyether polyols contracts fell in August for the third consecutive month; weak demand from automotive plus a seasonal lull were blamed.

Meanwhile, in Asia a polybutylene terephthalate (PBT) price upswing came to an end in August as buying momentum slowed, with some players expecting the weak demand to persist into the fourth quarter.

PBT, an engineering plastic, is used by the auto sector for mirror housings, fans, fuse boxes, cowl vents, and motor and ignition system components.

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Focus article by Will Beacham