LONDON (ICIS)--European chemicals firms are likely to face weakness in key end market the automotive sector in 2018, investment bank UBS said on Monday, due to margin pressure on suppliers and a prevailing bearish market for vehicles in China.
Sector demand is likely to face headwinds during the year as firming commodity prices and the cost of investment programmes such as electrification are likely to squeeze profitability in the sector, which could have a knock-on effect for chemicals players that supply the sector, UBS said in an investor note.
EU passenger car registrations rose 3.4% year on year in 2017, but demand dropped in December due to a shorter month and weakness in some markets, according to European Automobile Manufacturers' Association (ACEA) data on 17 January.
The UK passenger auto demand dropped for nine consecutive months to December.
China auto demand growth is likely to be weak for another year, according to UBS’ Asia autos team, while electric vehicle demand growth is likely to be muted in the country as the industry waits for a new policy stimulus to kick in.
Despite a subdued forecast for the European automotive sector, current economic indicators point to a broad-based investment recovery in the region on the back of firming GDP and purchasing managers’ index (PMI) data, with private investment surging and public spending also starting to return.
A broad-based investment recovery in the region is likely to be a positive for industrial gases producers, UBS added.
The bank upgraded its investment rating for Germany-headquartered industrial gases producer Linde to 'Buy'.
Pictured: A car park in Germany
Source: Hans Blossey/imageBROKER/REX/Shutterstock