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Automotive sector motors back after shutdown

The recovery of the automotive industry since the Covid-19 crisis offers good trading opportunities for the scrap sector, according to market experts who said the turnaround had been remarkable.

Industry specialist Kristin Dziczek said monthly production of light vehicles in the US had returned to typical summer levels, although she did not expect the industry to hit the high level of production seen in 2016 until 2028. She thought the sector’s supply chains would require at least two years to return to normal levels of activity.

The sentiment was expressed during an online conference organised by the US Institute of Scrap Recycling Industries to consider the state of the manufacturing supply chain in the US and the EU.

Less vehicle miles

Dziczek is vice-president of the Center for Automotive Research, a non-profit research organisation in the US. She pointed out that, because of the pandemic, KPMG anticipated a reduction of up to 9% in vehicle miles travelled with greater working from home and more people shopping online.

‘The automotive industry has been through a lot – it’s been the canary in the mine – but has seen a remarkable comeback’, said Dziczek, highlighting new growth in the biggest manufacturing country China. ‘There are three ingredients required for recovery: healthy workers, healthy demand and healthy supply security’.

Scrap opportunities

This renewed growth offered opportunity, she said, for the scrap sector although it remained to be seen if people replaced their vehicles as often or even switched to new types. Electric cars were increasingly popular and had been one of the types hit least by the pandemic. Even so, she pointed out, by 2027 94% of vehicles would still have internal combustion engines (including hybrids) and that had implications for recyclers.

The changing use of materials in modern cars would also affect recyclers. Whereas currently 40% of cars and trucks were made from mild and high strength steel, this was likely to fall to less than 10% by 2040. Use of plastics and aluminium would continue to grow.

Long, deep and vital chains

In response to a question from ISRI’s chief economist Joe Pickard, Dziczek praised the resilience of the manufacturer’s supply chains with Kris Bledowski, director and economist at the Manufacturers Alliance for Productivity and Innovation, saying the chains were long and deep and vital to the health of the sector.

Bledowski said he was optimistic about US manufacturing because it was more resilient than other sectors, particularly services. He cited several reasons including inventories, deferred consumption and investment, and asset-based borrowing.

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