Brazilian auto sector lockdown to trim polypropylene consumption by 10%: sources

The suspension of automotive sector operations in Brazil due to the coronavirus pandemic could generate at least a 10% drop in polypropylene consumption in the country, sources said Friday.

The shutdown of the sector is likely to affect polypropylene demand hardest, as most of the plastic used in vehicles is made out of polypropylene. Between 10% and 15% of all PP consumption in Brazil is directly linked to the automotive sector.

According to sources, the automotive sector is mostly supplied through contract purchases instead of the spot market, which does not affect the latter market directly, but indirectly.

"The spot market will have more material available because automakers will not use their polypropylene, which is usually purchased through contracts instead of the spot," a source said. "Therefore, with more material available, prices could fall."

Due to the uncertain nature of the situation, it is unclear if contracts will be suspended as automotive manufacturers are not commenting on the matter.

According to sources, contracts with automotive players are mostly in the hands of domestic producer Braskem and regional players Dow and Petrocuyo.

Braskem and Petrocuyo say their operations have not been affected by the coronavirus pandemic, Dow said it is taking measures to monitor the situation and mitigate the impact on its operations.

"If contracts are indeed suspended, we can imagine two situations as the outcome. First, producers carry out turnarounds and decrease their output for a period, or second, this material becomes available in the market, possibly making supply higher than demand, driving prices down," a trader said.

On Friday, the National Association of Motor Vehicle Manufacturers (Anfavea) said the entire Brazilian automotive industry would suspend its operations. All 65 car, truck, bus and agricultural machinery plants in Brazil have or will be shutting down as a result of the pandemic, Anfavea said.

In the car-making sector, the companies shutting down are Audi, BMW, Caoa Chery, Chevrolet, Fiat Chryser, Ford, Troller, Honda, Hyundai, Jaguar Land Rover, Mercedes-Benz, Mitsubishi/Suzuki, Nissan, Groupe PSA, Renault, Toyota and Volkswagen.

In the truck and bus sector, the manufacturers shutting their doors are Agrale, Daf, Iveco, Mercedes-Benz, Snaia, Volkswagen/Man and Volvo.

In the agricultural and construction machinery sphere, the companies halting operations are Agrale, AGCO, Caterpillar, CNH Industrial, John Deere, Komatsu and Volvo.

In January and February, the industry produced nearly 400,000 units combined. The expectation is that plants will be shuttered until at least the middle of April.