Automotive sales are falling in all major regions of the world, with knock-on effects for chemicals demand in many value chains.
Faltering economic growth in many countries and nervousness about the escalating US-China trade war are affecting sentiment everywhere, and especially in Asia and the US, which are most directly affected by the hikes in tariffs.
For the automotive sector this translates into lower vehicle sales as consumers delay making big ticket acquisitions and focus on day-to-day needs. Sales have collapsed quite spectacularly in China and India which have suffered double-digit declines.
China’s vehicles sales in April declined by 14.6% year on year to 1.98m units, marking 10 consecutive months of contraction amid continued pressure on the broader economy.
India’s April vehicle production fell by 10.7% year on year as its economy slowed and as consumers suffered lower availability of credit to finance vehicle purchases.
CAR PRODUCTION DECLINES
Passenger automotive registrations in Europe fell by 3.3% year on year in the first three months of 2019, the European Automobile Manufacturers Association (ACEA) said, amid a German industrial slowdown, weakening export demand and tepid growth in the region.
Honda said in the week that it will close its UK automotive factory in 2021. The factory produces 160,000 cars per year.
German auto production fell by 15% year-on-year in April and by 12% in the first four months of 2019, according to data made available by the country’s auto industry trade group VDA.
US sales of new light vehicles in April fell year-on-year (4.6%) and month-on-month (5.7%), according to seasonally adjusted annual rates (SAAR) from the US Bureau of Economic Analysis (BEA).
Many of the global car companies are also suffering as widespread overcapacity and the need for heavy investment in electric vehicle technology hurts profitabilty.
Ford announced in May that it will cut 7,000 jobs or 10% of its salaried workforce worldwide. General Motors, Volkswagen and Jaguar Land Rover are also cutting jobs.
The impact on chemicals markets has been widespread. In the last two weeks ICIS reported that the weak automotive sector has depressed demand for chemicals markets including Europe butanediol (BDO), US polyols, Europe epoxy resins, Europe oxo-alcohols, Europe acrylic acid, China acrylonitrile butadiene rubber (NBR), Europe PMMA, and Europe plasticizers.
Most recently, on 21 May, European soda ash markets have started to be affected by slowing automotive demand with consumption slowing for flat glass production for vehicles.
According to one buyer, slowing downstream automotive sales has already started to affect buying interest.
Besides slowing economic growth in many regions, other factors are at play here, some country-specific as well as more global trends. Regulators across all regions are pushing targets for the adoption of electric vehicles and are aiming to restrict or even ban diesel and petrol-powered cars from city streets.
In Europe, some car-makers have struggled to meet stricter vehicle emissions regulations introduced in the wake of the Volkswagen “dieselgate” emissions scandal. The “worldwide light vehicles test procedure”, or WLTP, took effect in Septem- ber 2018.
Many consumers are now worried about the effect of vehicle pollution on the environment and human health.
Rather than buy new vehicles people are choosing to use public transport or ride-sharing apps such as Uber and Lyft, which have revolutionised this sector.Another long-term factor is the ageing population and falling birth rates. Older people - with lower disposable income and grown-up families - tend to replace vehicles less often.
BRIGHT SPOT FOR CHEMICALS
The bright spot for future chemicals demand will be the provision of materials for electric vehicles such as lightweight polymers/composites and components for batteries.
The automotive sector is investing heavily in electric vehicles. Also in May, Volvo signed a multi-billion dollar deal with two Asian companies to supply batteries until 2028. The company wants half of all sales to be electric by 2025. Volkswagen aims to sell 3m battery vehicles a year by 2025 and is spending €50bn to secure access to batteries.
However, the switch from internal combustion engines may also dampen demand growth for high heat-resistant materials such as nylon 6,6. According to analysts Morgan Stanley in a report published on 17 May, sales of pure electric vehicles have continued to rocket ahead this year, despite the weakness in the overall automotive market.
These rose by 60% year on year to April in the US, by 89% year-on-year to March in Europe (73,700 vehicles), but by only 10% on year to April in China after subsidies were cut.
Morgan Stanley forecasts that global sales penetration for pure electric vehicles will rise rapidly from 3.2% in 2020 to reach 9.5% in 2025 and 32.1% in 2030. By 2050 pure electric vehicles will control 81.9% of the market.