Automotive slowdown due to Covid-19 batters petrochemical industry

The downturn of the North American automotive and auto parts industries due to the Covid-19 pandemic that shut down dealerships has dried demand for over a dozen chemical intermediate products.

Image courtesy of Bilderandi/Pixabay

Chemicals that go into auto parts and vehicle assembly lines have seen lost sales that may rebound at some still uncertain point but at least some of the lost consumption during the lockdown period may not come back as many vehicles see minimal driving.

Petrochemical companies in North and Latin America have reacted by slowing or idling production of those chemicals serving the automotive and auto parts industries.

Chemicals for auto parts hit hardest

“I think everybody knows automotives are down, and their tier partners are down,” said Bret Bement, director of Supply Chain Petrochemicals , North America, at BASF during a Petrochemical Update webinar on Covid-19 held on April 16, 2020.

Some auto parts may be an example of “industries that are truly missing sales they will never be able to recover,” Bement said.

“They’ll go on back to normal like the automotive market or I even think inside the auto market, the tire market. People are literally not driving as much, they are getting an extra two to three month benefit out of their tires, so that market is going to miss sales,” he said.

Paul Jepson, manager of logistics operations, specialties at SABIC, said during the webinar that intermediate chemicals that process auto parts represent the hardest hit area.

“We have the customers who are closed, the biggest of those being the automotives. That’s really affecting everybody,” Jepson said.

Rail traffic volumes provided in mid-April help give an idea of the demand destruction.

For the week ended April 11 carloads transporting motor vehicles and part fell 15,521 carloads to just 2,185 compared with the same week a year earlier, the Association of American Railroads said.

Petrochemical companies idle some production

“Automotive and construction have slowed down a lot,” said during an earnings call discussion on April 8 Pedro van Langendonck, finance and procurement official at Braskem, Latin America’s biggest petrochemical company.

“We’ve adjusted our production footprint because the automotive industry is not pulling so much,” he said referring to overall operations, including Braskem’s U.S. production assets, according to a Motley Fool transcript.

The Sao Paulo-based company’s main product in the U.S. is polypropylene (PP), he said.

While PP has other applications now in high demand, it is also the most widely used petrochemical in autos.

LyondellBasell is another company that has reported downward output adjustments related to the slashed automotive demand.

“In response to lower demand for certain products, the company has temporarily idled production at several small plants in the Advanced Polymer Solutions segment serving automotive end markets,” LyondellBasell said in a first-quarter earnings guidance published on April 15.

Polypropylene, polyurethanes and PVC hit hardest

“If you look at a light vehicle on average in the U.S. there is about $3,000, $3,300 in chemistry” Ed Brzytwa, director for international trade at the American Chemistry Council told Petrochemical Update during a November 2019 interview.

According to Craftech Industries, an auto parts producer, just three types of plastic make up 66% of the total used in a car with PP representing 32%, polyurethane 17% and polyvinyl chloride (PVC) 16%.

PP is used in bumpers, tanks, cable insulation and carpet fibers while polyurethanes go into seating, insulation, suspension and electrical parts. PVC is used for instrument panels, sheathing of electrical cables, pipes and doors.

Acrylonitrile Butadiene Styrene gives plastic a shiny surface. Butadiene, a rubbery substance, provides resilience at extreme temperatures. Applications for these two include body parts, dashboards and wheels.

Polyamide is a general-purpose nylon that goes into gears, bearings and weatherproof coatings.

Polystyrene goes into equipment housings, buttons, car fittings, and display bases. Polyethylene goes into car bodies and electrical insulation.

Polyoxymethylene is used for interior and exterior trims, as well as for fuel systems. Polycarbonates go into car bumpers, bulletproof glass and headlamps.

Acrylic (PMMA) is used for windows and display screens. Polybutylene terephthalate is a flame retardant that goes into door handles, bumpers and carburetors. Polyethylene terephthalate (PET) helps produce wiper arms, headlamp retainers and engine covers.

Acrylonitrile styrene acrylate goes into housings, interior parts and vehicle-related outdoor applications, according to Craftech Industries.

Commercial vehicles to see a 30% decline

According to an IHS Markit press release on April 17, the North American commercial vehicle market will see “a production decline of more than 30% in Class 4-8, or about 198,000 units from previous forecasts.”

“For the full year in the region, no more than 387,000 units (excluding bus chassis) will be produced in 2020, as truck makers have planned downtime through mid-April (possibly to be extended), which will account for approximately 13,000 units of lost production in North America this month alone,” it added.

James Fitterling, CEO of Dow Inc., said during an exclusive interview with IHS Markit that U.S. consumers may choose autos as a safer travel option compared with train or plane.

“My guess is people are going to want to go back to driving before they are going to go back to flying and we see that data already,” Fitterling said during a video-recorded interview with IHS vice chairman Daniel Yergin.

“China road traffic is kind of 80% of where it was back at the beginning of January but air travel and long trips and rail travel are only about 40% or 50% of what they were,” he said.

By Renzo Pipoli