The Asia Pacific region has of late emerged as the major synthetic rubber (SR) producing hub of the world thanks to an array of new projects and expansions in recent years. The region will continue to be the world’s largest producer and consumer of SR in the coming years too, says Roxanna Petrovic, General Director of Programmes, IISRP, in her overview of the global synthetic rubber market scenario provided exclusively to Rubber Asia. She also points out that that surplus synthetic rubber production capacity, on account of over investment, is one of the main challenges facing the global SR industry today
In the present climate, surplus synthetic rubber (SR) production capacity continues to be one of the main challenges facing the SR industry. This is more significant in the elastomer types used in the manufacturing of tyres and in the Asia Pacific region where China’s over capacity dominates, thanks to over investment. On the other hand, in the case of the non-tyre elastomers, the capacity utilization is higher and is on the recovery path.
The capacity surplus has forced to some level of rationalization in the SR industry to balance supply and demand taking into account aspects like idled production capacity, lower operation rates, and some permanent closings.
SR: Worldwide production
According to our statistics, Asia Pacific is the greatest consumer and producer region of SR in the world, and we estimate that Asia Pacific produces almost 60% of the global SR and consumes more than 65% of the total synthetic rubber in the world, having China as the largest producer and consumer country globally. However, Greater Asia has surpassed China’s production capacity and has become the largest market of SR supply.
Nevertheless, China is the largest producing country of SR globally due to the large investments made in the past years. China, being a developing economy, has been among the fastest growing economies in the world undergoing fast industrialization, which is driving a greater demand of SR in several end-use applications. Nevertheless, we believe that China will continue to be the largest producing and consuming country of SR for many years, even though in recent years we have seen that investments have slowed down. Moreover, the Asia Pacific region, where most of the new projects and expansions have been announced in recent years, will continue to be the largest producer of SR in the world.
SR market, consumption & drivers
The global economy improvement is raising more people into the middle class stream in emerging countries, and higher incomes are supporting the rising demand for consumer goods and services. As a result, the automotive industry keeps growing, construction output is rising, and the manufacturing activities are increasing, which are the key factors driving the growth of SR demand.
Global growth is expected to moderate over the next two years as global slowdown clears out. However, the outlook is dependent on a significant downside uncertainty, including the chaotic financial market developments, increasing trade protectionism, escalating geopolitical tensions, and advancing policy risk. By the end of 2018, the GDP is expected to reach around 3.9% (slightly higher than 2017), supported by investment in advanced economies, and a continued recovery in emerging and developing economies.
In spite of the positive outlook in the consumption of SR, challenges will continue to face the industry along the way. We, at IISRP, do not follow up on rubber prices, but we recognize that the volatility of SR prices generates pressure on the margins and financial results of the producing companies. Today the dynamics of the market are impacting the competitiveness of SR. In this regard, we can mention the following factors:
• Oil prices volatility: A year ago, the oil prices were in the range of USD50 to USD55, and today the oil prices are around 25% higher. As a result, the prices of the raw materials used in the manufacturing of SR have also increased. This situation has impacted the prices and margins of SR and delays the competitiveness of SR against other substitute materials.
• Global and regional economy: The increasing protectionist policies in the last year have reshaped the commercial dynamics. This growing trend is leading to increasing trade barriers and extra costs that could drive readjustments in the dynamics of global trade flows and could also have a negative impact on regional and global economic growth.
• Natural rubber market: The dynamics of the natural rubber (NR) market continues to impact the SR industry. In 2018, there has been a surplus of natural rubber supply which is driving to a natural rubber prices cutback. Likewise, taking into consideration the close relationship between both the materials, there is an impact on the prices of SR caused by the low prices of NR. Anticipating the future balance between SR and NR, first, we know that there is sufficient interaction between both the rubber types in the tyre sector. The substitution will continue if the prices go too far apart, but the performance will dictate the requirements, and the market is looking for high-performance tyres for the already growing demand for radial tyres which will influence the need for more SR.
The China factor
In line with our consumption forecast, we believe that the consumption of SR in China will continue to increase following the growth of the automotive and tyre industries and, of course, the economic growth, which has lately slowed down. Also, we must remember the ongoing Chinese labelling regulation of the tyres would be generating growth for the high-performance tyres demand, and therefore the SR related to its manufacture as the SSBR.
The auto and tyre manufacturing industries are the largest consumers of SR. These two industries account for around 75% of the consumption of SR worldwide.
Wide spectrum of SR usage
However, SR is used in the manufacture of many types of products that we use every day, making our life more comfortable.
• Construction Sector: This sector generates significant demand for SR in many end-uses as an additive in paving/roads and different types of waterproofing membranes.
• Adhesives & Sealants: Industries that typically use rubber adhesives and sealants include construction, consumer products, assembly, packaging, labelling, and transportation.
• Plastic Modification: SR is also the material used to modify the characteristics of some plastics used in the manufacture of household appliances and electronic devices.
• Footwear: It is a material used in the manufacture of footwear, both vulcanized and non-vulcanized, of different types, such as commercial, industrial, sports and other uses.
• Personal care: SR is also used in personal care products, such as diapers.
• Medical industry: SR is used to make various objects like tubes, stoppers, condoms, breathing bags, cushioning or supporting materials, prosthetics, implants, catheters, and surgical gloves.
• Industrial Goods: SR material is widely used in the manufacture of hoses, rubbers mats, rubber bands & belts, etc.
• Lubricants: SR is used as a viscosity modifier additive.
All these applications of synthetic rubber in recent years have presented a significant growth in line with regional and global economic growth.
Impact of circular economy
Another point that we must include in the dynamics of the market is the regulations and environmental trends, where tire labeling is one of the regulations that modify the market dynamics of some elastomers related to the manufacture of high-performance tires such as the SSBR, and China is in the process of implementing labeling as of 2019.
Within this topic of sustainability, the IISRP continues making efforts to provide its members with tools such as LCA studies in the SR industry. Today, we are in the process of knowing more about the circular economy and its impact on the SR industry. In addition to providing members with conferences and webinars on this topic, we are discussing the possibility of making a study of how circular economy could impact our industry and be prepared for the future.