Bearish sentiment clouds chemicals outlook for automotive demand

As the global automotive industry continues to navigate a transformational period in 2025, the impact on chemical demand is becoming increasingly apparent.

A push for vehicle electrification is driving lightweight solutions, which is good news for the plastics industry; however, ongoing high costs, the phaseout of incentives to buy new EVs amid fierce global competition, as well as a global tariff tussle all threaten demand in the sector.

Europe's automotive crisis, Asian competition

Car manufacturers in Europe have raised concerns about the financial viability of plants across the region as sales have slumped. According to the European Automobile Manufacturers' Association, new car registrations have dropped in the second half of 2024, with a notable 18.3% year-on-year fall in August.

Strong competition from Chinese EV producers has eaten into the market share of traditional automakers and led to Volkswagen and Stellantis announcing the closure of less viable factories. These bearish factors have weighed on the chemicals markets in Europe, resulting in softer consumption of plastics such as nylon, ABS, PVC and polypropylene, the most consumed plastic in car manufacturing.

The demand for European original equipment and replacement tires is also at historically lower levels, as cheaper Asian imports continue to flow into Europe. Manufacturer Michelin announced plans to shut down two plants in France by early 2026, citing high costs and competition from Asia as factors for the decision.

Data from the European Tyre and Rubber Manufacturers' Association showed replacement tire sales in Europe, the largest consumption segment for European SBR and PBR, were down 9% in Q3 2024 versus Q3 2021.

"We are compounding for the original equipment tire manufacturers, and in this line of business we are seeing a big decrease in demand," a converter said.

China EV producers face tariffs

However, it is not all smooth sailing for Asia's automobile-related chemical markets amid uncertainty around China's automobile production and the backdrop of expanding chemical capacities.

China's EV production increased in 2024, hitting a record-high 786,000 units in September, according to the China Association of Automobile Manufacturers. However, market sources said this trend would likely slow in 2025 due to import tariffs in Europe and potentially the US.

The EU announced on Oct. 29 tariffs of 7.8%-35.3% on EVs produced in China, citing subsidies, which were causing injury to the EU industry.

Market sources also said the US will likely add extra duties on Chinese-origin products under the new Trump administration, which would affect China's industrial production further and, consequently, slow demand for chemicals.

There is still some optimism for synthetic rubbers in 2025, especially solution-grade SBR, supported by the EV sector and demand for high-performance tire applications. Synthetic rubber makers could see additional respite on margins, due to capacity expansions for upstream butadiene in the first half of the year.

"Synthetic rubber remains indispensable to automobile tires," said Bernd Helbing, director of C4s and elastomers at S&P Global Commodity Insights. "With stable growth expected in world auto production, the outlook for the synthetic rubber market appears positive, while pricing dynamics will be influenced by factors such as the availability of butadiene."

Sinopec's joint venture with INEOS began operations in mid-November at its cracker in Tianjin, which has a butadiene capacity of 150,000 mt/year. Three more butadiene plants with a combined capacity of 690,000 mt/year are due to start up in China in early 2025, which is expected to ease import demand.

According to Chinese customs data, the country's 2024 butadiene imports from January to October stood at 308,261 mt, down 13% from the same period a year earlier.

Conservative outlook in North America as car production slows

In North America, the share of EVs is expected to grow in 2025; however, overall light vehicle production is projected to decline, resulting in softer demand for chemicals used by the industry.

According to forecasts by S&P Global Mobility, production is expected to fall from 15.5 million in 2024 to 15.3 million in 2025, while anticipated tariffs on the import of cars from Mexico and Canada to the US, as well as the removal of tax incentives on electric cars, could further harm production.

A drop in automobile production will impact US demand for synthetic rubbers as OEM tires manufactured in North America are sold for fitment to new cars, while cash-strapped consumers looking to replace worn tires on used vehicles increasingly turn to cheaper imported tires from Asia.

Projected demand for polymers like ABS, used to make both internal and external automotive components, may therefore be insufficient to restore ABS prices, which came down over the final three months of 2024, from a high of 97 cents/lb on Sept. 11 to 73 cents/lb on Dec. 11, according to Platts assessments from S&P Global Commodity Insights.

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Chemical Trends H1 2025
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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