LONDON (ICIS)–European chemical markets remain
cautious over the recent recovery from the key
automotive
sector, a result mainly of
industry restocking, while the pandemic’s
second wave hits the region hard.

The automotive sector has been the main area of
concern from the end-user markets
throughout the pandemic, and was the
last to show any signs of life at the end of
the first wave.

There has been higher demand
from automotive across
petrochemicals since September,
particularly from polymers that are used
for parts
production like polycarbonate (PC),
polymethyl methacrylate, (PMMA), polypropylene
(PP), nylon, and other engineering
plastics.

Stronger automotive demand is providing upward
pressure in a number of monthly and quarterly
contracts talks that are currently taking
place.

EU-wide passenger car registrations suffered in
the second quarter historic falls: April’s 75%
decrease, year on year, is likely to stick in
players’ minds as the bleakest figure they can
remember.

While consumers gradually returned to car
dealerships over the summer months, the falls
are likely to cause a 25%
annual decrease
in cars registrations,
according to trade group the European
Automobile Manufacturers Association (ACEA);
see graph for more data.

Commercial vehicle registrations in the EU
rebounded strongly in
September
, rising 13.3%, ACEA said last
week, commercial vehicles are those purchased
by companies – vans, trucks, and buses.

Registrations for commercial vehicles shrank
25% in the first nine months of 2020, compared
with the same period a year earlier.



However, despite the stronger consumption
figures and the sharp rise in vehicle
registrations, market participants remain very
cautious across the board.

STIMULUS PACKAGES 
There are multiple government stimulus packages
that are incentivising vehicles
purchasing, but this may not be supported
by actual demand from consumers.

This is a key concern for many companies, as it
would be detrimental to consumption in the
first quarter, which is traditionally one of
the strongest times for this sector.

“There is always a question about what happens
when the subsidies end? The original equipment
manufacturers [OEMs] have a lot of
finished car stock which will have to be
destocked, so let’s see how automotive rebounds
from now until Q1,” said earlier this
month the CEO at Belgium’s chemicals major
Solvay, Ilham Khadri.

It is the combination of the
government stimulus and supply chain
restocking that is driving the current
levels, making it very hard for companies to
gauge the actual strength of the sector, and
how long it will last.

“We don’t know if it is recovery or a
blip,” said one titanium dioxide (TiO2) buyer.

RESTOCKING
The automotive sector was practically idle for
most of the pandemic’s first wave, coinciding
with generalised lockdowns across Europe, and
demand was largely lost, with large OEM’s not
operating.

Part of the recent push is linked to OEM’s
working on new models, which require a wide
range of plastics and coatings product for
parts.

Going forward, this is a key opportunity
for the petrochemical sector, with
light-weighting and innovation doubling the
demand for some polymers on a per vehicle
basis.

OEM running rates remain mixed; some players
said normal levels of demand are only being
registered in the electric vehicles (EVs)
chain, with levels higher year on year.

However, production destined to other
automotive sub-sectors remains lower than
levels seen in 2019, at which point the
automotive sector was already struggling.

“It’s a very inconsistent view. We are seeing
restocking from tier 1 and 2 parts
manufactures, but overall running rates are
below 2019,” said one major chemical producer.

END DEMAND
The pandemic has caused a sharp decline in
public transport use, either because of
restrictions or a lack in public confidence.

“Individual transportation is deemed the safest
way to
protect yourself from coronavirus,”
said one seller.

However, there has also been a steep decline in
social mobility and general vehicle use, with
many people working from home and limiting
other outings.

A number of markets have seen an increase
in demand because of this shift in lifestyle
for consumers, particularly the paints,
coatings and
polyurethanes (PU) sectors.

With wider spread uncertainty and the
longer-term economic impact of the virus
becoming more apparent, this will limit
disposable income for many households.

Consumers may be driven to make minor
purchases, such as carrying out ‘do it
yourself’ (DIY) projects, but there will become
more constraints on big-money purchases
such as cars.

This is the main concern for many in the
petrochemicals sector, and the reason
why the early signs of recovery are not
being prematurely celebrated.

The true test will come in the second-quarter
of next year, and until then the industry is
set to continue operating on a short-term
survival mode.

Front page picture: Electric vehicles at a
Volkswagen plant in Zwickau, 
Germany
Source: Jens
Meyer/AP/Shutterstock 

Focus article by Katherine Sale

Additional reporting by Will Beacham,
Anne-Sophie Briant-Vaghela, Heidi Finch, and
Miguel Rodriguez-Fernandez