London — While many analysts see a shaky outlook for the global auto industry, ICBC/Standard Bank said it remained neutral on the sector, with possible upside potential from the growing electric vehicle side of the business.
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"After the past decade of generally strong metals demand growth from the auto industry, recent months have seen the sector become a source of concern due to the potential for a broad based slowdown," ICBC/Standard Bank strategist Marcus Garvey said.
ICBC's view was that an incrementally more dovish US Federal Open Market Committee stance "should combine with the Chinese authorities' recent tilt towards more supportive policy to stabilize auto sales in 2019".
Automobile sales last year in China -- the world's largest car market -- totaled 28.08 million units, down 2.8%. The China Passenger Car Association said it was the first drop in full-year sales since 1992.
For the US, Cox Automotive has forecast 2018 sales of 17.2 million vehicles, up from 17.1 million units in 2017. Edmunds.com, meanwhile, estimated 2018 US sales at 17.3 million vehicles.
"Recent weeks have seen numerous restructuring announcements and strategy updates from global auto makers. This comes against a backdrop of struggling sectoral equity performance, with the ongoing US-China trade negotiations and wider concerns about the outlook for global growth both weighing on investor sentiment," Garvey said.
Chinese stimulus measures will be important to the auto sector, according to ICBC and TD Securities.
China's GDP growth slowed to 6.4% year on year in the fourth quarter of 2018, down from 6.5% in Q3 but largely in line with market expectations. Full-year 2018 growth was 6.6%, versus 6.8% in 2017.
"Speculation surrounding Chinese policy support for the consumption of cars saw palladium prices surge [earlier this week], as a revival in auto demand in China would remove a major impediment to sky-high prices," TD analyst Bart Melek told clients this week.
However, palladium, a key ingredient in petrol-powered vehicle's catalytic converters, has since seen a hefty correction as markets instead focus on the China-US trade war and the outlook for the global economy.
"Given palladium's gearing to the sector, with auto catalysts accounting for c.85% of demand, its recent rally to historic highs above $1,400/oz [down to around $1,348/oz as of 1105 GMT] would seem to fly in the face [of a struggling auto industry]," Garvey said, adding there were other moving parts in the palladium story.
In Europe, sales have stalled just above 15 million vehicles in the past two years, within touching distance of the 2007 pre-crisis high of 15.6 million vehicles, according to ICBC data.
"At the beginning to 2019, however, neither the US nor European market has yet turned downwards," Garvey said.
"Outside of China's slowdown, automakers appear to be to trying to get ahead of changes in the wider business cycle, so that they are better set-up to take advantage of on-going structural shifts within the industry," he said.
The upcoming move away from pure combustion engines towards hybrids and pure electric powertrains looks set to be a dominant global theme over the next decade. That will likely support metals such as copper, nickel, cobalt and lithium, as well as tin to a lesser degree, according to ICBC research.
Glencore included a CRU study in its December 2018 investor update, which estimated the impact of both electric cars and associated infrastructure on copper, nickel and cobalt demand.
Specifically, they project that total electric vehicle related copper demand will grow from 391,000 mt in 2020 to 4.08 million mt in 2030, while Nickel demand will surge to 1.14 million mt from 86,000 mt over the same period.
"Investors will need to distinguish between those commodities which have a high degree of demand leverage to very specific future scenarios versus those which should benefit from a general shift towards greater electrification and automation," Garvey said.
--Ben Kilbey, firstname.lastname@example.org
--Edited by Dan Lalor, email@example.com