European demand for plastics is expected to rise over the next few months after key industry data showed the car, manufacturing and construction industries grew in January at the fastest pace for multiple years.
Data provider Markit’s purchasing managers’ index (PMI) for European manufacturing, a key benchmark for the strength of the economy and demand for plastics in general, hit 54 in January, up from 52.7 a month earlier, marking its fastest expansion since May 2011.
With plastics demand driven by the packaging industry (39.4%) followed by the building and construction sector (20.5%) and then the automotive industry (8.3%), demand for plastics such as polyethylene, polypropylene and polyvinyl chloride (PVC) is expected to rise.
One polymer buyer said: “For us, [the stand-out market] is going to be food packaging. It is showing strong demand and is very consistent.”
The rebound was led by Europe’s biggest manufacturing nation Germany, whose PMI rose to a near three-year high of 56.5 in January from 54.3 in December.
But the rebound was also aided by an acceleration in the south of the region, particularly in Spain and Greece.
Both countries posted PMIs at fresh highs in January, with Spain’s PMI rising to 52.2, marking a three-and-a-half-year high, and Greece’s PMI rising to 51.2, marking a five-and-a-half-year high.
“The eurozone manufacturing recovery gained significant further momentum in January…However, perhaps the most important development in the report is the further revival of manufacturing in the region’s periphery,” said Chris Williamson, chief economist at Markit.
BRICK BY BRICK
In construction, which consumes 60% of PVC, the UK PMI rose to 64.6 last month from 62.1 in December, the sharpest expansion in construction activity in Europe’s second-biggest economy since August 2007.
“Demand for PVC in the UK is fairly reasonable, and I think we are probably doing better than some of our continental neighbors,” one UK-based PVC buyer said.
In Germany, the eurozone’s biggest economy, the same construction index fell to 52.5 in January from December’s four-month high of 53.7. However, the index remained above the 50 mark, which separates growth from contraction, for the ninth successive month.
The figures have injected bullishness into the market for PVC, which is used to produce pipes, window frames and doors.
“We said that January was much stronger than ever before. The UK is certainly the strongest construction market of all but we see a similar effect across Northwest Europe in Germany, Belgium, Scandinavia and the Netherlands,” a PVC producer said. “We see a revival in southern Europe including Italy and Spain. It’s not as good as in the past but it’s better than last year. We only see France being a little behind,” the producer said.
REVIVAL IN THE MUCH-TROUBLED SOUTH
According to car manufacturing figures, a similar pattern of rising plastic demand has emerged in both northern and southern Europe. In the automotive sector — the demand provider for polypropylene, butadiene, styrene and synthetic rubber — the number of western European automotive sales in January rose 5.1% to 900,791 units from 857,278 units a year earlier, according to data company LMC Automotive.
By country, Spanish car registrations rose 7.6% to 53,436 units from 46,673 units a year earlier, aided by government incentives, while in France car registrations rose by 0.5% year on year to 125,477 units, the data showed.
Italian car registrations also increased by 3.2% year on year to 117,802 units in January, according to new car registration data released by the Italian Transport and Infrastructure Ministry.
This compares with a 7.6% increase in UK car registrations to 154,562 units and a 7.2% increase in German car registrations to 206,000 units, according to LMC Automotive.
However, fears have started to emerge that growth in car sales in the UK and Spain may only be temporary, with the situation being supported by government subsidies and a wave of compensation payments worth GBP20 billion and paid out by banks to millions of their customers for mis-selling insurance.
“If the government in Spain removes [the incentives]…the sales will go back to being poor,” said a Bridgestone company source. Bridgestone is the world’s largest tire and rubber company.
Last month, the BBC linked the car sales figures to the insurance payouts after interviewing several car dealerships.
Source: Platts.com
