A. Saj Mathews
The US rubber industry, boasting a commendable legacy spanning over a century, comprises a variety of sectors such as tyre, tyre retreading, synthetic rubber, rubber chemicals, speciality rubbers, rubber latex medical devices etc. The region, still continuing to be a major force in terms of rubber and tyre consumption, is on a forward march despite ups and downs. The ongoing trade war between the US and China is posing a major challenge for the US rubber industry of late.
Not surprisingly, the rest of the world is always quite keen to do business with the US rubber industry. For prospective investors, a solid base in the US market is an essential pre-requisite.
The US Rubber Product Manufacturing industry offers a wide variety of rubber-based products, ranging from automotive components and roofing materials to shoe soles and office supplies. Over the five years to 2019, industry revenue is expected to rise at an annualized rate of 0.3% to $20.9 billion.
Steep drop in the price of natural and synthetic rubber inputs have constrained the US rubber industry’s performance of late. Strong recovery in the price of rubber inputs and continued demand from downstream markets are expected to support revenue growth during the current period, say market analysts, adding that, however, a steep drop in the price of rubber is expected to lead the industry revenue to stagnate in 2019.
The Rubber Products Manufacturing in the US industry consists of automotive rubber components, rubber compounds and mixtures, industrial rubber products, other mechanical rubber components, foam rubber products etc.
Indonesia, Malaysia and Thailand produce the bulk of world’s natural rubber, the raw material for rubber products manufactured by the industry. During periods of strong demand, operators can raise prices along with growth in rubber input prices, spurring industry revenue. The world price of rubber is anticipated to decline in 2019, posing a potential threat to the industry.
The trade-weighted index (TWI) measures the strength of the US dollar relative to the currencies of its trading partners. When the TWI rises, there is greater import competition and industry exports are relatively less competitive on the global market. The TWI is expected to decline in 2019, providing a potential opportunity for the industry.
The United States’ Industrial Rubber Market is projected to grow at a double digit CAGR during 2018-2023 owing to the growing automotive sector, growing construction industry and increasing production in the chemical industry. Increasing demand for more expensive product types in United States, together with the development of new high-end industrial rubber products for mature markets, will contribute to market gains as well. Moreover, growth in the country’s tire industry is backed by increasing sales volume of different vehicle segments, which is resulting in expansion of replacement automotive fleet in the U.S., will further propel the growth of industrial rubber market in United States.
Based on product, the mechanical rubber goods segment is anticipated to dominate the industrial rubber market during the near future owing to growing automotive industry. Overall, the United States is the world’s second largest market for vehicle sales and production. In 2016, the U.S. light vehicle production crossed 12 million passenger vehicles and light vehicle sales reached 17.5 million units. The growth in automotive industry will directly boost the demand for industrial rubber in the country. The leading players in the industrial rubber market include Goodyear Tire and Rubber Company, ExxonMobil, American Synthetic Rubber Company, among others.
Might of US Rubber Industry
Over the years, the might of the US rubber industry has grown by leaps and bounds. Changing with the times, the region continues to be a major force in terms of rubber and tyre consumption apart from being a major producer and consumer of synthetic rubber (SR), a host of speciality rubber chemicals and is home to a booming US$130 billion medical devices market, the largest in the world. The region is also fiercely competitive in all aspects of the wider tyre market – passenger car tyres, truck and bus tyres, agricultural tyres and OTR tyres.
The United States’ rubber industry has an eventful past, a pulsating present and a challenging future. During the late 19th century, Ohio emerged as the leader of rubber production in the United States. Numerous rubber companies operated in or near Akron, Ohio, making this city the ‘Rubber Capital of the World.’ Among the large-scale rubber producers that had factories in the area were the B.F. Goodrich Company, the Goodyear Tire and Rubber Company, and the Firestone Tire and Rubber Company. The advent of the bicycles first and then the automobiles allowed these companies to earn tremendous wealth.
Chemicals and industrial products
The US synthetic rubber industry reports more than $4.5 billion in annual shipments, and it exports substantial amounts of these materials. The production and sales of rubber-based products provide major market opportunities. According to the latest research reports, the global rubber processing chemicals market which was valued at over USD 3.71 billion in 2015, is expected to reach above USD 5.10 billion in 2021 and is anticipated to grow at a CAGR of slightly above 5.2% between 2016 and 2021.
After a slight slump, the industrial rubber product demand in the US has been on a recovery path since 2013. Advances will benefit from a turnaround in motor vehicle production and there is an ongoing process of recovery in the manufacturing sector. However, these areas, including Australia and Canada, will continue to be the most intensive users of industrial rubber products because of the advanced industrial and technological nature of their economies.
Challenging times for the US tyre sector
According to Gerald R. Potts, a US-based expert of the US rubber and tyre industry, the last five decades of the US tyre industry was quite eventful and marked by a series of mergers and acquisitions involving mostly foreign players who were far ahead in adopting advanced tyre manufacturing technologies. Today, the tire industry in USA is on a par with the rest of world and its future will be what will be seen in the rest of the world, since world tires are now similar in construction and operation and depend more upon vehicle use than nationality.
The US represent the world’s largest and advanced tyre market. The industry has been growing at a notable speed during the last few years on the back of growing automobile production, domestic and foreign investments, and regulatory support. However, since 2009, three has been some sort of disappointment for the industry and economic crisis dented the tyre demand-supply mix significantly. Manufacturers halted their capacity expansion plans and even closed several plants which were not cost-competitive. The industry witnessed remarkable recovery in 2010 and, in the wake of increasing tyre demand, the supply side also rejuvenated.
According to a latest study, tire industry in the US is undergoing a transformation phase amid drastically declined Chinese imports and encouraged domestic production. The recovering automobile production, replacement tyre demand, and advancements in technology up-gradation are revitalizing the industry’s growth outlook and sustaining market attractiveness of the US as a viable investment destination in the region.
Despite such promising future growth prospects, there are some factors which can affect the growth trajectory of the tyre industry. For instance, the industry is highly raw material-intensive and any fluctuation in raw material availability leads to substantial price fluctuation in tyre production costs. Among all ingredients, natural rubber accounts for the most dominating share. In order to sustain its competitive edge and its dominance, the country will have to increase its rubber production in the coming years to maintain a balance between the tyre industry demand and supply.
Despite strong downstream demand, the US tyre manufacturing industry contracted moderately over the five years to 2017 due primarily to the appreciating US dollar, falling global rubber prices and a rise in foreign competition. Operators within this industry manufacture motor vehicle and aircraft tires, inner tubes and tire repair materials. Therefore, demand from downstream markets such as automobile manufacturers and tire retailers are the main drivers of the industry revenue. Over the five years to 2022, performance of the industry is expected to improve modestly as the unemployment rate remains low and consumer incomes rise.
Threat from imports
In 2015, though the U.S. market for truck and bus tires was about $6 billion, the US producers supplied only 60% of that demand. The US truck and bus tire producers already are operating at full capacity. So even with new US tire factories opening, imports are still needed to meet the US demand. China was the leading import source of truck and bus tires with about $1.2 billion imported in 2015.
All the US produced tires were of premium brands, whereas most of the Chinese tires were sold under lesser known or private label brands. Consumers generally associate producers’ brand names such as Goodyear or Bridgestone or Michelin with quality and performance. Surprisingly, the Chinese tyres were not priced lower when sold under a private label. This price difference associated with the different brands reflects the distinct market segments, the higher priced premium US brands did not really compete with the no-name generics or private label Chinese tires.
Moreover, though tire prices declined between 2013 to 2015, this was due primarily to declines in raw material costs, primarily natural rubber. Prices of the US tires sold to OEM customers fell at the same rate as prices for the US after-market sales, even though very few Chinese tires were sold to OEM customers. China-made tires thus cannot be blamed for the price declines that were occurring.
The domestic tire industry also was performing quite well and thus had a hard time demonstrating it had been injured.
The domestic industry was healthy as production, capacity utilization, shipments have all been higher since 2015. Employment, wages and productivity indicators also showed improvement. The domestic producers had high and rising profits even though prices had fallen. So, even as the Chinese imports were increasing, the US tire producers were thriving.
The road ahead
US Demand for Rubber
The US demand for rubber is forecast to reach $8.9 billion in 2021, according to Rubber: United States, a report recently released by Freedonia Focus Reports. Tyre manufacturing and retreading represent a significant source of demand for rubber in the US, with the two combined accounting for roughly three-fifths of domestic rubber consumption over the historical period. Thus, the most widely consumed elastomers are styrene-butadiene rubber, natural rubber, and polybutadiene rubber due to their use in tire production. Expansion in domestic tire production will spur growth in demand for these elastomers.
Gains in consumption of natural rubber will lead to growth in the rubber market as a whole as segment demand rebounds. Demand for natural rubber reached its lowest point since 2009 in 2016 as prices plummeted and the US tire production fell from the 2011 peaks. Most automotive car tires feature a natural rubber proportion of 10% to 40%. Larger tires and those utilized in demanding applications require a higher proportion of natural rubber.