How Would the Recent Turmoil in the US Banking Sector Affect its Automotive and Construction Industries?

Texas, USA: At the very least, the failure of two sizable US banks (Silicon Valley Bank and Signature Bank) and the subsequent crisis of confidence that has spread to other US regional banks. Now European financial institutions pose a serious threat to lending standards, which could further slow economic growth and push both the US and European economies into recession. The consequences for the economically fragile chemical industry are profound since a significant slowdown or contraction in GDP growth would severely dent demand for Petrochemicals such as EPDM Rubber in an already sensitive environment.

In 2022, the US Federal Reserve increased interest rates to an all-time high to tighten credit conditions and rein in inflationary trends. The value of long-term Government bonds and other debt, such as Mortgage-Backed Securities (MBS), that banks hold on their books has fallen as a result. Banks must sell these securities at steep losses to meet the withdrawals if depositors withdraw their money in big amounts, as has been observed.

The US housing market, a significant end-market for EPDM Rubber that has already been severely impacted by increased interest rates, may see lending for projects become much more restrictive. More restrictions on Acquisition, Development, And Construction (AD&C) loans for builders across the country will be a knock-on effect of the pressure on regional banks and the Fed's ongoing tightening. Consequently, the EPDM rubber market would be impacted. As financing becomes more difficult and people hold off on major purchases, another important end-market for EPDM Rubber, the automotive industry, could also experience new challenges.

As per ChemAnalyst's anticipation, "Whatever impact this bank turmoil leaves on the automotive and housing sector will definitely influence the EPDM Rubber market as construction and automotive are the two major downstream industries."