By Juan Ramon Salinas
The synthetic rubber (SR) industry, like any other industry, has some challenges and drivers that have significant influence on its growth and performance. Some of these may be transient, but some are durable. The on going situation of overcapacity has been the biggest challenge facing the SR industry for the past three years.
Overcapacity is one of the biggest challenges facing the global synthetic rubber (SR) industry. This has been driven mainly by over-investment in China during the past years. This situation of overcapacity has forced many facilities to work with reduced operating rates and delay or cancel several expansion projects. Some facilities have been deactivated or dismantled and others are in the process of switching over to produce other elastomer types such as SBS. This is most noticeable in China and the Asia Pacific region.
Even so, the SR industry is expected to continue to grow moderately compared to the previous years. By 2016, the installed capacity is expected to grow by 2 per cent, according to our information. To this situation of overcapacity, if we add dull world economic growth, the situation becomes more complicated.
Uses in key industries
Synthetic rubbers have been leading the global rubber market since the 1940’s and are used in the manufacture of many types of products that we use every day which make our lives more comfortable. The automotive and tyre sectors will keep driving the SR demand. The construction sector generates significant demand of synthetic rubber in many end-uses such as paving/roads, waterproofing membranes, and adhesives and sealants. It is also very useful to the food industry with several end uses such as labelling, packaging, and more. Synthetic rubbers are also the material of choice for appliances, footwear, personal care, medical applications and others.
The SR industry has an important and extensive business relationship with all these key industries, and therefore, has been influenced by the performance and situation of its trading partners. The global SR market experienced a sharp downfall in demand during the global economic crisis. However, coming out of the deep recession impact, it expects a moderate growth rate close to 2 per cent CAGR in the upcoming years.
In terms of volume, Asia-Pacific accounted for more than a 60% share of the global synthetic rubber market in 2016. It is projected to be the fastest-growing market for synthetic rubber in the upcoming years as well. Synthetic rubber demand in the region is estimated to be primarily driven by a rapid upsurge in the consumption of SR in China, India, and the ASEAN region.
Growth in the tyre sector (growing popularity of green tyres), automotive and construction industries are projected to drive SR demand in Asia-Pacific in the next few years. The synthetic rubber market in North America is projected to witness decent growth due to a steady recovery from the economic slowdown. The market for synthetic rubber in Europe is anticipated to experience slow growth due to the continued economic downturn. The synthetic rubber market in Latin America is anticipated to grow and have a steady growth in the next eight years, largely due to growth in automotive and construction end-user industries.
Some industries require special synthetic rubbers to manufacture some of their products which must achieve high performance and special features. Specialized or high-specification synthetic rubbers often have a better unit margin, but require a high investment in technological development and also investments to modify manufacturing facilities. Sometimes they also have a slower growth in consumption.
Environmental trends and new regulations create challenges and opportunities for the development of products that can help to preserve the environment more efficiently. The most well-knownspeciality products in the synthetic rubber industry are products related to the manufacture of high-performance tyres but there are many other examples such as products to achieve lower fuel consumption in the auto parts industry or high-performance lubricating oils or those used in the medical, home appliance or personal care applications among others.
Global economic scenario
Today, according to the IMF’s October 2016 Forecast Report, world economy in 2016 will end up with a slow growth in the order of 3.1 per cent. The forecast was revised down by 0.1 per cent and, possibly by 2017, we may have a slightly higher growth than in 2016, possibly 3.4 per cent. This report reflects a more subdued outlook for advanced economies following the June U.K. vote in favour of leaving the European Union (Brexit) and a weaker-than-expected growth in the United States. The next 3 years are forecasted to have world economic growth in the order of 3.5 – 3.8 per cent, which is far from 5.5 per cent before the collapse of the world economy in 2008-2009.
China will remain a key source of growth and the concern since its economic transition towards a market-oriented economy continues. India is expected to be the economic growth leader globally, supported by policy making and structural reforms, and the growth is expected to be sustainable at least until 2018. The US economy is gradually improving, and consumer spending confidence will continue to be the primary engine of growth. The Brazilian economy will return to a modest positive expansion rate in 2017 supported by the recovery of industrial production, a trade surplus and a more competitive exchange rate.
The current perspective of the world economy is not devoid of threats. The Chinese economy, which has not recently met its growth expectations, is an example. Even though it has growth below expectations in recent years, it is still registering significant growth of a large economy and its failure to grow could become a serious setback in the region.
Also, the threat of terrorism in various regions of the world and the U.K. vote in favour of leaving the European Community may affect its trade and financial relations. These effects are not very clear today. The financial situation in Europe remains challenging, and the situation of banking system in some countries remains a concern. Also, non-economic factors may affect world trade. Some of these factors lead to protectionism-oriented policies and inward-oriented policies on account of preoccupation with foreign competition and the benefit of globalized trade on employment and local wages, in an environment of weakening economic growth. However, the attractiveness of such protectionist policies have potential negative effects on world trade flows. Uncertainty about these trends could lead to a short-term economic slowdown and the stagnation of advanced economies.
Taking into account the economic outlook and the actual situation of overcapacity in the synthetic rubber industry, there is an impact in the consumption volume, growth rate and other factors. The current situation of low prices of oil, and therefore, in the monomers, is good news for the synthetic rubber industry. The other side of the coin is, with the low prices of the rubber products combined with oversupply and poor performance of the global economy, a complex scenario has been created which has put revenues and margins of the synthetic rubber producers under pressure. But now could be the moment to improve the competitiveness of the synthetic rubber industry, improve product portfolios and manufacturing costs, and be ready for a better future. There is no denying the fact that the future of the rubber industry is closely associated with the global economic situation.
For the SR industry, it is important to have a reliable, sufficient and safe supply and competitive price in raw materials. In the past several years, the SR industry has suffered from monomers price volatility and also from supply problems. Likewise, the industry started projects to develop alternative sources of supply such as bio-monomers. These projects continue but not with the same urgency as when they started. Today, and for the next few years, it is not anticipated that there will be a shortage of monomers.
In the recent past oil prices have been much lower than in previous years. This has significantly influenced the price of the monomers and, therefore, the synthetic rubber prices. Today, oil prices are in the range of 50 dollars per barrel; but oil prices were, at times, below the 40-dollar per barrel mark. The oil-producing countries have seen their revenues decline; so they are making continuous efforts to reduce supply and raise price, which is complex and difficult to do.
The next year, according to analysts, prices are expected to be slightly higher; so, the prices of the monomers could also be slightly higher. This would generate higher SR prices and, as a consequence, higher producer incomes, but could become less competitive against other substitute products which do not depend on oil prices, such as natural rubber. There are some markets where certain SR types can be replaced by natural rubber or vice versa; this dynamics has an economic driver behind it and I believe this will continue with a similar market dynamic. But I think they complement each other in some market segments. I would like to add that SR has several market segments that do not compete with natural rubber. However, synthetic rubber also faces important challenges with other materials.
Sustainability and environment
All industries, synthetic rubber industry included, have an impact on the environment and this should motivate and oblige us to have a commitment to improving our industrial environmental performance and lifestyle. It should motivate us to enhance our products and industrial processes to make them more environment-friendly. Among some of the practices or projects that the SR industry does to improve its environment performance are:
a) Utilization of returnable packaging – an initiative that helps to reduce the consumption and disposal of fibre board. In the last two years, in line with the latest product benchmarking exercise, the use of returnable packaging has increased by 5 per cent for some elastomer types. Now, more and more producers are using returnable packaging.
b) Minimization of waste, air emissions and waste water loading is one of the constituents of green initiatives. The industry is working with the 3 R policies — Recycle, Recover and Reuse – implementing zero waste to landfill, developing better process technologies in order to reduce air emissions and to have optimized processes such as desolventization technologies and catalytic combustion.
c) Developing new technologies to improve energy-efficient manufacturing processes using high efficiency process equipment and the lower reaction temperatures technology. All of these help reduce energy consumption.
d) Using more environment-friendly materials in the solvents used in polymerization and the oils used to improve processability of synthetic rubber.
The IISRP continues to do what we do best, that is, to provide integral services to our members and to continue working on all programs and projects in our portfolio, including the development of our own Synthetic Rubber Consumption Forecasting Model. Also, we are launching a Webinar Program. The Institute is scheduled to hold its 58th Annual General Meeting (AGM) during April 24 – 27, 2017, in the city of Taipei, Taiwan. The theme is: Building a Sustainable Future.
The AGM is the platform where we hold the annual meeting of the Institute’s Board of Directors and the meetings of the different committees and sections. We have a Business Program with different conferences and topics of interest to the SR industry. We continue to work on our strategic plan which comprises a significant number of initiatives, projects and programs, among which, in addition to those previously mentioned, include increased cooperation and collaboration with sister associations around the world such as the IRSG, ETRMA, ACC, CSRIA and CRIA among others.
We will continue to work on the Institute’s purpose which is to further the long-term growth of the SR industry worldwide for the benefit of producers, customers and end users and to become the best investment of a synthetic rubber manufacturer and the best trade association.