Urethane Blog
German Auto Update
November 4, 2020
German automotive improves but recovery may stall as second wave hits
Author: Morgan Condon
2020/11/04
LONDON (ICIS)–The German automotive sector performed better in October but the pace of recovery could stall before the end of the year, according to data from the Ifo Institute.
Newly imposed lockdowns in major European economies, including Germany, caused automotive industry’s expectations to decline for the fourth consecutive month as the restrictions could weigh heavily on economic activity.
However, current sentiment among automotive players increased to -0.2 points in October, up sharply from -20.4 points in September.
Both figures are up from the record low of -86.2 points posted in April.
Capacity utilisation rose to 86% in October, rising significantly from levels of 73% in July.
Companies are still planning to increase production, although at a more modest rate than in September.
Increased demand from the automotive sector has led to improved sentiment across various chemicals markets.
An upward tick in demand has provided some buoyancy for markets including polyethylene (PE), polymethyl methacrylate (PMMA), caprolactam (capro), methylene chloride (MEC), nylon, and toluene diisocyanate (TDI).
This has given some traction to chemicals producers; Germany’s Evonik said this week September demand for its materials, including from automotive, had been healthy.
“Replacement products like silica for tyres have led the way in the recovery but also nylon 6,6 has shown improving trends towards the end of the third quarter,” said Evonik’s CEO Christian Kullmann in a call with analysts.
The strength of automotive manufacturing was key in boosting sales in the specialty producer’s Smart Materials business unit.
Equity chemicals analysts at Baader Bank said Evonik’s Smart Materials division had “demonstrated stability” in inorganics such as hydrogen peroxide (H2)2) or catalysts.
“And [Evonik] benefited from improving trends in the automotive-related businesses.” said analyst Markus Mayer.
![](https://a.mpcdn.io/everchem/2020/11/Screenshot-2020-11-04-141409.jpg?auto=compress%2Cformat&fit=scale&h=594&ixlib=php-3.3.1&w=1024&wpsize=large)
DRIVING FORCE
According to data from the European Automobile Manufacturers’ Association (ACEA), September was the first month to stem losses on the previous year, with an 8.4% increase compared to the same time a year prior.
Newly registered cars in Germany increased 5% in September, compared to the previous year, but this was not a boon to domestic industry as it was driven by demand for hybrid and electric vehicles (EVs).
While German manufacturers have some models available, there is a wider range from producers based in other countries.
Expectations declined for the fourth consecutive month in October, down sharply from 27.6 points in September to 17.7 points as new mobility restrictions kick in across Europe.
Order backlogs also shrank from September’s unusually high level of 51.5 points, down to 29.2 points in October.
Ifo’s research showed automobile manufacturers in Germany are looking to make further staff reductions.
CHANGING LANES
Although the domestic market may be suffering, Germany’s automotive industry is mainly reliant on exports.
Ifo said 74.8% of vehicles produced in 2019 were exported.
Dynamics for the export market are also expected to soften in coming months, falling from 31.3 points to 23.2 points in October.
Export demand already dropped 34% in January-September, year on year, with further losses prevented by more solid demand for German vehicles in China.
In 2019, China was the third largest export market for German producers, behind the UK and the US.
However, the course of the pandemic, hitting both the UK and the US hard, may erode the recovery.
“While the main European customer countries the UK, France, Italy or Spain, and also the US, are still firmly in the grip of the corona pandemic, the demand for German cars in China is picking up again noticeably,” said Ifo’s head for industrial organisation Oliver Falck.
Despite the challenges facing the automotive industry, German – and indeed European – chemicals makers could feel less impact as they are not confined to selling automotive materials and parts to domestic markets.
Buoyant demand in China and gradual recoveries in other regions could keep the automotive industry on stable ground to close off 2020.
However, as the pandemic can change course quickly, uncertainty is set to be the reigning trend for the time being.
Front page picture: Assembly line at a Volkswagen plant in Zwickau, east Germany
Source: Jens Meyer/AP/Shutterstock
Focus article by Morgan Condon
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