𝗛𝗮𝗽𝗽𝘆 𝗡𝗲𝘄 𝗬𝗲𝗮𝗿! 𝗧𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻 - A new journey for a new year! This account will be retired tomorrow. To keep up to da… https://t.co/yPzg4KYP4d
Light Vehicle Production Outlook In 2021
Butadiene and synthetic rubber demand are driven by the tire and automotive industry. While tires, by far, account for the largest finished-goods consumption of butadiene, other significant end uses include belts, hoses, and gaskets. Tire demand is divided into two segments, original equipment (OE) and replacement (RE). The OE segment is driven by automotive production, while the RE segment is driven by the number of cars on the road and miles driven by these cars. Globally, OE accounts for roughly 25% of the market and the RE segment accounts for the rest. However, the OE and RE shares are different, with developed countries having higher RE shares while developing countries have higher OE shares. OE segment demand has a very close relationship with automotive production because OE tire demand is driven by the number of new vehicles produced. In this focus, we will look at the automotive industry outlook in 2021 after the sharp decline due to COVID-19 last year.
Light vehicle production
Global light vehicle production growth is driven by three regions, which are Northeast Asia, North America, and Europe. Three regions account for close to 90% of global light vehicle production. In 2020, Northeast Asia excluding mainland China accounted for 15% and mainland China alone accounted for 31%, while the other two regions accounted for 40%. In 2020, global light vehicle production was severely impacted by the COVID-19 pandemic. Vehicle production market share changed in 2020 as the production share of mainland China increased while that of other Northeast Asia, Europe, and North America decreased. Production share of mainland China increased last year as mainland China was the first market impacted by COVID-19 and also the first to recover from it, and the automotive industry was able to restart vehicle production much earlier and increased production rapidly.
The COVID-19 impact on automotive industry was devastating. Global light vehicle production substantially declined. In 2019, light vehicle production was about 89 million units, but vehicle production decreased about 14 million units in 2020. On a regional basis Europe; North America; Northeast Asia excluding mainland China; and South Asia, comprising Southeast Asia and the Indian Subcontinent, experienced more than a 20% decline in production. Mainland China, on the other hand, experienced the least impact from COVID-19, where production was only down about 4%. When the COVID-19 outbreak first started in mainland China, the government took steps to contain the virus from spreading by strict measures and lockdowns. Automotive production drastically decreased as transport of auto parts was disrupted by road closures and labor shortages. However, mainland China was able to contain the virus spread relatively quickly compared to other regions and automotive production also restarted relatively quickly while other regions had to maintain low production rates as efforts to contain the pandemic continued. This was the main reason why mainland Chinese automotive production saw less than 5% decline while other regions had 15-20% declines. Northeast Asia, Europe, and North America will continue to lead the global automotive industry. IHS Markit Automotive group forecasts strong production growth this year. Mainland China is expected to lead the global production growth followed by Europe, North America, and other parts of Northeast Asia. IHS Markit Automotive forecasts light vehicle production to grow about 14% in 2021. Vehicle production is expected to increase by 6% in mainland China, by 14% in Europe, by 24% in North America, and by 7% in other parts of Northeast Asia. Global light vehicle production is expected to increase sharply in all regions, but regional production is not expected to surpass the production level reached in 2019 except for mainland China. Automotive production in mainland China is expected to reach around 24.8 million units this year, slightly surpassing the level reached in 2019.
Just as the automotive industry started to experience a moderate recovery in production levels following a pandemic-inflicted slowdown, the semiconductor shortage crisis has hit the automotive industry. Optimistic views on the automotive industry this year are facing some headwinds as the semiconductor shortage is not expected to be resolved soon. The ramp-up in demand of chips from the automotive industry started when the supply lines were already stretched by significant demand for chips from the consumer electronics sector for 5G phones and infrastructure, new gaming platforms, and IT equipment. There are no easy fixes to the capacity constraints owing to the long and complex manufacturing processes of semiconductors, which make new capacity building a capital-intensive and time-consuming affair.
Although major semiconductor suppliers, such as Taiwan-based Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC), have announced investment plans to increase production capacities, these efforts will not bear fruit over the short term and will force automotive OEMs and their tier-1 chip suppliers to reformulate their conventional semiconductor sourcing strategies. The crisis has highlighted that the traditional short-term sourcing cycle that automotive companies have pursued may not bode well with production and scale cycles that the consumer electronics sector commands to semiconductor manufacturers. Other major semiconductor manufacturers such as Intel, Samsung, and Qualcomm produce semiconductors for personal electronics, memory, and others. Semiconductors used for the automotive industry and electronics or memory have different properties. Unlike semiconductors for electronics or memory, automotive semiconductor require longer durability and the ability to withstand extreme weather conditions. The growth of electric vehicles (EVs) is driving the increasing need for semiconductors in the automobile industry, given that EV systems require considerably more semiconductor content than conventional propulsion systems. These hybrid and fully electric vehicles often are equipped with more advanced driver assistance systems (ADAS) and infotainment features. These advanced entertainment systems, digital clusters, heads-up displays (HUDs), safety features, and ADAS technologies require systems-on-chip (SoCs) designs that need highly advanced process nodes and that are likely to put added pressure on the already-constrained foundries. IHS Markit Automotive expects the shortage to last until the third quarter of 2021, when reallocation of capacity from semiconductor foundries and possibly some cooling-off of consumer electronics demand should provide greater supply security.
Although the automotive industry is facing some headwinds owing to the semiconductor shortage, which is expected to be resolved by third quarter 2021, industry outlook is optimistic this year. Automotive production growth is expected to be around 13% this year, led by mainland China followed by Europe, North America, and other parts of Northeast Asia. Vehicle production from rest of the other region is also expected to grow sharply this year. Demand for synthetic and natural rubber is expected to increase as strong growth is expected from automotive and tire industry, along with increased demand from the replacement tire sector as vaccinations have started and improving mobility indicators around the globe.
IHS Markit experts are closely analzing the butadine market with near-term market intelligence provided through the Global C4 Olefins & Elastomers Market Advisory Service.