Day: 16 June 2020

Fitch Solutions expects global automotive production to decline -11.5% on-year in 2020 as a result of Covid-19-related lockdown measures and supply chain disruption.

The current crisis has hit the industry harder than the 2008/09 global financial crash. “Even back in the global financial crisis the industry could still operate, so companies could still produce, dealers could still sell,” Fitch Solutions autos research head Anna-Marie Baisden said during a webinar monitored by Kallanish. “What we’re expecting now is… actually more than double the decline during the global financial crisis.”

A second wave of Covid-19 could push the automotive sector recovery into 2022 instead of the mild recovery currently forecast from 2021.

Carmakers have taken on vast credit to heavily invest in recent years into electrification and autonomous vehicles. These are things that have not yet provided a return on investment, and now their income has been weakened further. This will spell a difficult operational environment for these companies in 2020-21.

Electric vehicles (EV) will, however, benefit from pollution concerns linked to Covid-19, a respiratory disease. Consumers are seen becoming increasingly cautious of climate change and their carbon footprint post Covid-19. Governments will promote the use of electric cars as these have zero tailpipe emissions and contribute to CO2 and NO2 reduction, Fitch Solutions says.

EVs will be at the centre of the production restart for at least four reasons. They are more automated and less labour intensive; lower scale, cheaper in nominal terms, and more commercially viable for automakers with challenging operational costs. Moreover, ramping up production of EVs coincides with the requirement to reduce average fleet emissions in Europe. Finally, they typically require fewer component parts and narrower supply chains at a time of heightened supply chain risk.

As a result of the pandemic, “…automakers will increasingly look to diversify their supply chains away from China,” said Fitch Solutions principal autos analyst Joshua Cobb. There will not be a mass exodus but automakers will reduce their capacity in China and relocate closer to their primary markets.

Nevertheless, “…there’s no other country that can come close to China when it comes to manufacturing capability,” Cobb observed. India comes close in terms of labour costs, but still needs significant development to absorb that capacity from China.

Morocco – where French carmakers have established manufacturing capabilities – could benefit from carmakers leaving China or Algeria, where operational risk is rising. Chinese automakers could benefit from the exit of carmakers from Southeast Asia.

The London Metal Exchange (LME) has issued a market-wide discussion paper on its proposal to introduce an electronic warranting process that enables customers to make and take delivery of metal, the exchange said on June 15.

The paper — which closes for feedback on 10 July — seeks views from market participants on both the operational and legal implications of the measure. The LME aims to launch the proposed warrant function by the end of October this year.

“We believe warrant dematerialisation will be highly beneficial for our users and for the LME,” Matthew Chamberlain, LME Chief Executive said. “By replacing the physical transferral process with an electronic one, we reduce administrative burden and eliminate operational risk in warrant lodgement and withdrawal.”

The digitisation of the depository function is complex and has involved the input of external counsel from all 14 of the jurisdictions where LME warehouses operate. As a result of this process, the LME has proposed a legal structure that caters for the local areas of all its warehouse locations.

Under the proposed structure, warrants will either be fully electronic, or “immobilised” in jurisdictions where a paper warrant is still legally required and produced, but the warrant itself is printed by the LME and will only remain valid while inside the LME’s depository.

“Having direct oversight of this new depository service also provides us with more control over future development, as well as in business continuity scenarios,” said Chamberlain.

— Annalisa Villa

The European Commission (EC) has officially announced the opening of an anti-subsidy investigation into hot rolled coil imports from Turkey. This will run in addition to the ongoing anti-dumping investigation launched last month, Kallanish notes.

The investigation was started following a complaint lodged on 30 April by Eurofer which, for example, indicated that Turkey offers a number of subsidies and incentives for exports, investments and electricity prices.

“The Commission considers that the complaint includes sufficient evidence that the producers of the product under investigation from Turkey have benefitted from a number of countervailable subsidies,” the EC explains.

The investigation is set to be concluded by July 2021, while provisional measures could be applied before March 2021.