India’s auto industry drives polymer demand


_Charlotte Rao, Yi-Jeng Huang and Mayumi Watanabele S&P Global Platts*_

_**HOW has the rise of India as an automotive manufacturing hub affected demand for various commodities? In an video discussion, Charlotte Rao, steel editor S&P Platts, joins Yi-Jeng Huang, petrochemicals editor S&P Platts, and Mayumi Watanabe, senior metals editor S&P Platts, to examine the impact of India’s booming car industry on demand for steel, and even for plastics and aluminum as lightweighting becomes a trend for many auto makers. Here below is the gist of their discussion.

Welcome to this episode of S&P Global Platts Commodity Pulse. I’m Charlotte Rao, associate editor covering steel in Asia. I’m joined today by Yi-Jeng Huang, petrochemicals editor, here at the Singapore Studio. And from our office in Tokyo, Mayumi Watanabe, who covers the metals market.

CHARLOTTE: Today, we’ll look at how the rise of India as an auto manufacturing hub impacts demand for different commodities, particularly as more automakers are looking at lighter materials such as polymers and aluminum.

As you know, India is the second most populous country in the world. The country’s car market has the potential to grow up to 6 million cars by 2020.

In the financial year that ended in March, India produced 23.9 million vehicles - 3.6 million of these were exported.

Passenger vehicle salesare expected to increase by 7-8% in the current fiscal ending March 2017, and by 8-9% during the next fiscal ending March 2018. This is mainly driven by replacement demand, and an increased buying from first timecar owners as the economy picks up.

Meanwhile, trucksales are estimated to grow 13-15% on expectations demand will pick-up for commercial vehicles from sectors such as mining, infrastructure and the capital goods.

India is also rolling out of new emission control reforms, which can also drive demand.

So, in the last couple of years Indian steelmakers expanded their re-rolling capacities in anticipation of rising demand for automotive steel.

Tata Steel with Nippon Steel & Sumitomo Metal Corp, as well as JFE Steel and JSW Steel started a cold rolling mill in southern India, while South Korea’s Posco set up a new plant in western India.

In fact, India’s imports of flat steel products from Japan soared by 43%, while Korea’s flat steel exports to India surged by a whopping 73% on year.

Seems like its boom time for automotive steel consumption in India.

However, the global auto industry is also moving towards incorporating lighter materials in vehicle manufacturing.

Speaking about the prospects from the polymers point of view Yi-Jeng, said:

  1. Lightweighting is the industry trend of making cars more fuel efficient by making it lighter, mostly using plastics and aluminum components to replace steel while retaining the performance.
  2. For example, plastic polymers make blow molded fuel tanks 40% lighter, battery boxes 70% lighter than traditional metal components.
  3. Polymers are used in dashboards, interiors, exteriors, trims, bumpers, you name it.
  4. The average car, globally, uses 150 kg of plastic and composites in 2015, up from about 120 kg 2013, but India’s plastic use per car is only about half of global average, meaning it has significant room to grow.
  5. India's automotive sector consumed about 300,000 mt of polymers a year, more than half of which is polypropylene, and because of the rise of India’s consumers - as you mentioned, India now imports more and more impact copolymer polypropylene to make automotive and white goods use. Let’s look at the stats.
  6. Copolymer imports into India has more than doubled in the last five years, to 150,000 mt in 2015, and it primarily comes from 5 countries - Singapore, United Arab Emirates, Thailand, South Korea, and Saudi Arabia.

Yi-Jeng further continued that the import trend would continue. Two key reasons drive the increasing use of polypropylene in automobiles – (1) lightweighting for fuel efficiency; and (2) because PP is increasingly replacing more expensive engineering plastics such as ABS. So, industry sources have good reasons to expect double-digit growth of automotive plastic components in the next five years.

Mayumi Watanabe, from Tokyo speaking about aluminum metal, also an important component as far as lightweighting is concerned said that the amount of light aluminum in Indian cars is expected rise, as automakers face requirements to cut carbon emissions.

Today the rough estimate of aluminum consumption per one Indian car is between 50 to 80 kilograms, which is roughly less than half of US's 160 kg. The US cars are expected to grow its aluminum usage to 250 kg in the next ten years. Indian auto sector will increase aluminum consumption in its own way.

Cars go through several stages in getting themselves lighter: the first stage is with the engines, initially made of steel. Then the automakers go on to work with using aluminum for wheels, hoods, doors and in the body.

India is currently at the phase of almost completing the first stage with engines.

And the country is about to reach the second stage of aluminization, to the wheels, as new car models come with choices of aluminum wheels or steel wheels.

In March 2016, Maruti Suzuki, the leading automaker in India, released a model called Baleno. There are two types, Baleno XT with aluminum wheels, and Baleno XG with steel wheels.

You are expected to pay several hundred dollars extra for the model using aluminum wheels, rather than steel, because it costs more to manufacture aluminum wheel than steel wheel. The aluminum raw material costs twice as much as steel.

On the question of how much Indian consumers would willing to pay for lighter cars, Mayumi said Aluminum components can boost car costs can go up by about $40,000, which is three times the price of a compact sedan. Aluminum usage will grow organically with the increase in the Indian car production, because most cars will have lighter engines.

But for the most multinational aluminum auto components makers, aluminum usage growth in India is something for 2020 and beyond, as jump from the engine phase to the wheel phase and beyond, is expected to take several more years, along with the per capita income growth of the Indian population.

Mayumi further elaborated that Automotive components makers need at least five years to make an investment decision. If you want to plan for 2020, you have to start thinking today.

The largest concerns are, will the market for more expensive, larger cars develop in India? India is likely to impose a higher tax on more expensive cars, and will such tax discourage demand? Or it will not matter?

Recently, some sports utility vehicles have been gaining popularity. Will this be a long trend?

And how fast will the Indian car market evolve, compared to other emerging markets such as Mexico, China and Thailand? Mexico, China and Thailand are, like India, focused on automotive industry development. India will be competing with these countries to attract foreign investment.

Likewise, Indian government and the Indian automotive sector have challenging days ahead to meet criteria of both Indian consumers and multinational automakers.

Polypropylene copolymer imports surged

India’s polypropylene copolymer imports surged to about 40,000 mt in the first quarter of this year, up 27% from Q1 2015, led by strong demand from the country’s thriving automotive sector, industry sources said last week.

India’s PP copolymer import growth has been on a sharp uptrend over the last five years, doubling to more than 150,000 mt in 2015, in tandem with the growth seen in the automobile sector, industry sources said.

Of the Q1 imports, 85% came from Singapore, the UAE, Thailand and South Korea, data from India's Ministry of Commerce and Industry showed.

PP is the dominant automotive copolymer, contributing a quarter to half of an automobile’s polymer usage by weight. Polyurethane contributes about a fifth by weight, while polyamides, polyethylenes, acrylonitrile-butadiene-styrene and polycarbonates, roughly proportionally, make up the remainder, according to Nexant.

An average car globally uses 150 kg of polymers and composites in 2015, up from 120 kg in 2013, and each kilogram of polymer typically reduces the weight of a car by 2-3 kg, industry sources said.

While polymer usage per car in India is currently just half of the global average, the drive for lighter cars and better fuel efficiency - dubbed lightweighting - is also occurring in India, which will fuel future automotive polymer demand, an industry source said, citing mileage as the second-most important consumer preference after the price of the automobile.

New fuel efficiency standards such as the Bharat Stage VI emission standards that will be fully rolled out in 2020, will also drive lightweighting in the years ahead, as the industry races to meet environmental standards.

PP Copolymer demand rises on growth in auto component makers

Industry sources said India’s automotive sector, including compounders and component OEMs have helped drive demand for PP copolymer. Consumption from this sector represented more than a quarter of India’s overall PP copolymer demand of 700,000 mt in 2015. India’s petrochemical producers have been taking notice and switching more of their plant capacities from PP homopolymer to copolymer production in recent years, sources said.

Plants which have converted some or all of their capacities to copolymers include Indian Oil Corporation's 700,000 mt/year Panipat plant, Haldia Petrochemical Limited’s 320,000 mt/year plant, and Reliance Industries Limited’s 420,000 mt/year plant at Hazira, sources said.

“[Reliance] has converted [its] Hazira [plant] to produce [PP] copolymers to serve [demand from the] automotive and white goods industry,” industry sources said, with company sources confirming the plant is producing almost entirely copolymers this year.

Still, the rise in domestic production is unlikely to stem the need for PP copolymer imports, as OEM raw material specification remains a hurdle to the adoption of domestic copolymer for automotive use, industry sources said. “Auto [component] makers are often global OEMs - using specific polymers from specific producers. Local polymer producers have not been as proactive working with OEMs yet, hence the need for increased [PP] copolymer imports,” said a source, predicting that such imports will be necessary for years to come.

The typical OEM raw material approval process takes six months or more, a hurdle not all domestic producers are willing to actively pursue, the source said.

With the price of import PP copolymers declining over the last five years, there is no immediate incentive for end-users to switch away from imports, another source said.

The CFR South Asia PP copolymer price, which is predominantly India, was assessed at $1,110/mt on July 20, down 30% from July 20, 2011, S&P Global Platts data showed.

Contact Email: Yi-Jeng Huang, -Mayumi Watanabe, -Tess Tseng,**_

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