Chemical execs say auto manufacturing comeback to boost lagging inputs

Houston — As major automakers prepare to resume some manufacturing this month, petrochemical producers see upstream benefits to polymers and other products that help provide the pieces that make up vehicles, executives said.

Dow Chemical Chief Financial Officer Howard Ungerleider said Thursday the company expects to see "some demand pull" for products used to make vehicles, like polyurethane foam for seat cushions, in the back half of the year as Ford, GM and Fiat-Chrysler plan to restart some US output on May 18 following shutdowns due to the coronavirus pandemic.

"I'm sitting here in Michigan," he said during the virtual Goldman Sachs Industrials and Materials conference. "The automotive companies, the big three, have started a return to work as of [May 18]. And then the target is starting next week, they'll start to ramp production again. So we should start to see as the quarter progresses and then certainly into the back half of the year, we'll start to see some demand pull."

He said isocyanates, used to make automotive foams, paints and varnishes, had fallen to the cash breakeven point, "so there's not much lower they can possibly go."

Polypropylene also is heavily tied to the automotive sector. It is used to make plastics that make vehicles more lightweight, like dashboards and door panels. US export homopolymer injection-grade PP prices were last assessed Wednesday at $750-$777/mt FAS Houston, down 28% since April 9, S&P Global Platts data showed.

CHINESE AUTOMOTIVE SECTOR IMPROVING; US, EUROPE EXPECTED NEXT

DuPont CFO Lori Koch told the same conference Thursday the company has seen improvement in China's automotive sector as the country has emerged from widespread shutdowns due to the pandemic. North American and Europe continued to be weak into the second quarter, "really predominately from auto," with major manufacturers shut down in March, she said.

"They are starting to come back up," she said. "I think Europe is coming up slowly, and North America should be coming up any day now, slowly."

DuPont has shut-in about 50% of its polymer capacity in preparation for downside risks in the automotive, aerospace, oil and natural gas and other industrial sectors. The automotive sector accounts for nearly 15% of the company's sales.

Ungerleider noted that as the pandemic spread around the globe, the chemical sector has seen strong demand for consumer staples like food packaging, health and hygiene and cleaning materials, "while anything touching durable goods, particularly automotive and appliances, were soft."

He noted gasoline demand was rising as motorists increasingly resume some driving as stay-at-home orders and lockdowns ease.

"We know it's going to take some time for consumers to re-engage," Ungerleider said.

"But already this month, we're seeing economies make plans to reopen with industries like automotive and construction beginning that process even this week. As this trend of a gradual and sustainable reopening of economies continues through the second half of this quarter, we expect recovery will begin to take hold as the year progresses," he said.