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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.
Semiconductor shortage
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.
Conclusion
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.
