Disruption in European chemicals sector production as a result of a cut-off in Russian gas supply will have severe knock-on effects on the automotive sector’s ability to operate, says Moody’s. Chemical products are a significant part of supply chains for the automotive and manufacturing sectors.
The chemical sector is highly reliant on natural gas. If governments ration natural gas, the credit rating agency expects chemical companies to suffer from lower production volumes and financial losses. Governments would probably prioritise chemical companies supplying essential products or end markets, such as pharmaceuticals or agriculture.
The automotive sector’s production volumes are already under strain as a result of supply chain disruptions. Higher raw material and energy prices are increasing production costs.
“These factors weigh on margins, especially for automotive parts suppliers, because their contracts, especially for non-commoditised materials, in the past did not include price adjustment clauses. By contrast most automakers have successfully passed on higher costs to consumers and are selling more expensive and more profitable vehicles,” Moody’s observes in a note sent to Kallanish.
A Russian gas cut-off would also fuel inflation and increase macroeconomic uncertainties, thereby further weakening consumer confidence, Moody’s adds.
Adam Smith Poland