Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Introduction
When the coronavirus disease 2019 (COVID-19) first erupted in
China, the global industry already began to feel the impact,
especially in the automotive and airline industries. COVID-19
rapidly spread through Asia but there were fewer cases seen outside
China. Now, two months after the first outbreak in China, COVID-19
has been rapidly spreading outside of Asia, especially in Europe,
Iran, and the US. COVID-19 has been spreading widely worldwide, and
recently the World Health Organization (WHO) declared COVID-19 a
pandemic. Global energy and stock markets crashed after the
declaration, and every country is raising entry barriers to control
and prevent the spread of COVID-19. All industries are impacted but
each industry is being impacted at different levels. In this focus
report, we will take a look at the impact COVID-19 could have on
rubber demand.
COVID-19 Status
As of 19 March 2020, the total number of global confirmed cases
has reached 236,420. China has the largest number of confirmed
cases as COVID-19 first appeared in Wuhan, Hubei Province. The
number of confirmed COVID-19 cases has been rapidly increasing in
Italy and Iran, at 41,035 and 18,407, respectively. The emergence
of new cases in Asian countries has been slowing after many
governments restricted travel from countries where COVID-19 is
widely spread and raised entry barriers to prevent spread within
the country. Global concern has increased as COVID-19 is rapidly
spreading in Europe. In addition to Italy; Spain, Germany, and
France have thousands of confirmed cases, and cases in other
European countries are increasing rapidly as well. The US
government announced a restriction on travel from Europe; even
within Europe, each country is restricting internal travel. Travel
restrictions will reduce traffic between countries substantially.
This will eventually have a direct impact on demand for C4s and
derivative products like butadiene, synthetic and natural rubber,
and acrylonitrile-butadiene-styrene (ABS). The global spread of
COVID-19 has disrupted global supply chains and decreased labor
availability, thus impacting manufacturing plants globally.
Industrial Impact
COVID-19 is impacting every single sector of global industry. The
airline industry is struggling with the substantial decrease in the
number of passengers and flights. The International Air Transport
Association (IATA) estimated a 9- 23% decrease in the number of
passengers flying, depending on region, even before the rapid
spread of COVID-19 in Europe and the US. European countries are
blocking borders and reducing the number of flights in and out in
order to prevent further spread. The estimated impact on passenger
numbers is likely to grow even further from the table shown.
It is estimated that airplane tires are required to be replaced
after roughly 300-400 take-offs and landings. With the number of
flights being substantially reduced because of COVID-19, demand for
both synthetic and natural rubbers will decrease as well. Further
restrictions on air travel are possible around the globe and will
likely further reduce demand for rubber. Aside from rubber demand,
all other petrochemical demand associated with the airline industry
is likely to decrease, especially demand for plastics associated
with packaging and inflight services like meals and drinks.
Far more concerning is the automotive industry. The automotive
industry was already impaired when COVID-19 started rapidly
spreading within China. China accounts for roughly one-fourth of
global light vehicle production and manufacturing sites had to be
shut down amid labor shortages, province lockdowns, and logistic
problems. This was not only a problem for China, but also for
automotive manufacturers in other countries as well. Automotive
manufacturers who relied on auto part imports from China were also
impacted. Several manufacturers had to reduce production rates or
even shut down for a few days because of low auto part inventory.
According to IHS Markit Automotive, the global light vehicle
production forecast is around 87.2 million units for 2020, which
was forecast before the rapid spread of COVID-19 in Europe and the
US. This year's production forecast is lower than 2014 production
levels. Global automotive production growth rates were -1.0% in
2018 and -5.6% in 2019. Global automotive production growth was
expected to be -1.9% in 2020, but it is a near certainty that the
growth rate will be much lower than pre-COVID-19 views.
Tire demand is divided into two segments: original equipment (OE)
and replacement equipment (RE). The OE
segment accounts for roughly 25% of global tire demand, while
the RE segment accounts for the rest. The reduction in the light
vehicle production forecast will decrease demand for the OE tire
segment. This is only 25% of total tire demand, but COVID-19 will
also have an impact on RE segment tire demand as people are
required to stay home, businesses require employees to work from
home, and blockades are placed between countries, provinces, and
cities to prevent the spread of the virus. These measures will
eventually have a big impact on demand for rubber as well as
butadiene. Over half of butadiene demand is driven by tire and
automotive industries.
Large butadiene derivatives like polybutadiene rubber and
styrenebutadiene rubber are key components of producing tires and
other auto parts like belts, hoses, and gaskets. Some ABS demand
also comes from the production of auto parts. These three
derivatives account for roughly three-fourths of global butadiene
demand. Significant demand decreases from the tire and automotive
industries will pressure butadiene demand and price. COVID-19 is
continuing to spread around the globe and is likely to further
impact demand for butadiene and rubbers. The ultimate magnitude of
the impact on C4s and rubbers is still too early to predict at this
stage, but the impact is expected to increase until COVID-19 is
contained globally.
