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Mired by the current tight supply and high prices, brought on by an increase in oil prices , the synthetic rubber sector is facing challenging times; but it still has a lucrative future with companies shoring up capacities and tying up resources to build up the market further, according to Angelica Buan in this report.
The call from the Organisation of the Petroleum Exporting Countries (OPEC) to reduce oil output to 1.2 barrels per day (BPD) for six months starting January 2017 resulted in a rise in crude oil prices, according to the Association of Natural Rubber Producing Countries (ANRPC). The latter is an inter-governmental organisation comprising 11 members that together account for about 90% of global production of natural rubber: Cambodia, China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam. The move levered up the Brent crude oil by 20.5% or averaging at US$53/barrel this year, from the previous year’s US$44/barrel, citing the recent Short-Term Energy Outlook released by the US Energy Information Administration (EIA).
With oil price revitalised, prices of feedstock, including that of synthetic rubbers, being petroleum-derived products, are set to go up. It is said that a mere percent change in oil rates translates into 0.6% shift in prices of synthetic rubbers.
The scenario, on the other hand, offers demand opportunity for natural rubber amid tight supply that is further riled by the recent floods in Thailand, which accounts for 37% of global supply of natural rubber.
According to ANRPC, the increase in oil price has kindled possibilities for natural rubber to be filling in demand for synthetic rubbers, which are at the cusp of tight supply and high prices.
Domino effect on rubber gloves price/demand
Increasing prices of both natural and synthetic rubbers affect prices of rubber products such as rubber gloves that are made from various kinds of polymers and latex including nitrile rubber, vinyl and neoprene. With the current price dynamics of these rubber types, synthetic rubber (which is considered more stable in supply than natural rubber) suddenly becomes more expensive. Will this affect demand for synthetic rubber in gloves manufacturing?
New York-headquartered Persistence Market Research (PMR) finds that high-grade nitrile (synthetic) rubber is even more increasingly replacing natural latex, in light of the increasing incidences of allergy with latex gloves use.
Market demand for rubber gloves is robust, and this will continue to surge, especially in the third and fourth quarter of the year, according to the Malaysian Rubber Glove Manufacturers Association (Margma). Representing glove makers of Malaysia, which accounts for over 50% of the world market, Margma, while denying there is glut in rubber gloves production, admits to the rising production cost burdening gloves makers in the country. Adding to output cost woes is the rising cost to produce synthetic rubber, due to a looming shortage of its key ingredient butadiene.
As expected, the remedy to sustain profit margins is to increase the prices of rubber gloves and add on the higher production cost to consumers. Producers have increased glove prices by US$1 to US$1.50 from September to December 2016.
This year, against the back of higher raw materials cost, nitrile gloves prices may be adjusted by US$2.50 to US$3.50 per 1,000 pieces.
Malaysia’s MIDF Amanah Investment Bank’s research team, in its report published in December, attributed the nitrile price surge to an increase in natural rubber’s price (primarily due to the annual wintering season for rubber trees from March until May); and to the temporary shutdown of petrochemical plants in China that produce nitrile butadiene. The latter, according to MIDF, may be due to maintenance and refurbishment works rather than shortage of the feedstock.
Tyres priced up on tight butadiene supply
Butadiene, an intermediate petrochemical used for the production of styrene butadiene rubber (SSBR) used in tyres, is also in tight supply as demand from China’s tyre makers keeps surging, says a 2016 butadiene rubber report by Petrochemical Reporter. Other reasons for the tight supply are steam crackers shifting to lighter feedstocks such as the gas-fed crackers in the Middle East, which have little butadiene co-product; coal-to-olefins plants in China, which produce no butadiene, and the development of shale gas in the US. All these factors are consequently flaring up the cost of the raw material.
Tyres are the largest end-user segment of the synthetic rubber market, accounting for more than 50% share in 2014. It is expected to be the fastest growing end-user segment, expanding at a CAGR of 4.3% from 2015 to 2023, Transparency Markets Research (TMR) said in a market report.
With butadiene becoming more expensive, and to offset costs, rubber manufacturers are pressed to either defer production or use lower-grade butadiene, which is cheaper than the oft-preferred high-grade butadiene.
Triggered by the higher production cost, a trail of price hikes for tyres have been announced and eventually implemented.
French tyre maker’s US arm, Michelin North America, increased its prices up by 8% for passenger, heavy truck, earthmover, industrial-handling, agriculture and two-wheel tyre products across all of the company’s brands in North America and Mexico.
US-headquartered Goodyear Tire & Rubber Company is also bumping up prices of its product range in North America by 8%.
In January, Canadian Dynamic Tire implemented a price hike of between 5-8% for its Sailun-brand of passenger, light truck, medium truck and ST-type trailer tyres in North America.
Other companies are waiting until 1 March as the target date for charging up prices. Tennessee-headquartered speciality after-market tyre OEM, Carlstar Group, is increasing prices by 8-12% for its Carlisle, Marastar, Marathon and Ultra CRT speciality tyre brands; adding on to the 5-8% increase for its ITP brand of tyres already in force.
Bridgestone Americas is also setting an 8% price adjustment across its range of passenger, light truck, OTR and agriculture tyres and tubes in North America; and Nexen Americas is adding 5% increase on its tyre prices.
Taiwanese tyre makers have also picked up on the trend. Cheng Shin Rubber, the producer of Maxxis brand, is mulling a price increase to take effect in the first quarter of 2017; Kenda Rubber, on the other hand, is upping prices by 3-5%.
Rise of new plants to build up supply of raw materials
Fortunately, efforts are being exerted by some industry players to build up capacities and stabilise the supply of synthetic rubbers. For example, US-based global chemical materials firm Trinseo is increasing capacity of SSBR at its synthetic rubber manufacturing complex in Schkopau, Germany. With this expansion, adding 50 kilotonnes of SSBR, to meet growing customer demand for the product, specifically the Sprintan rubber products in performance tyres, the company’s global SSBR production will go up 33%. This additional capacity is expected to be online in January 2018.
Joint ventures among industry’s major players are also being set up. India-based Reliance Industries Limited (RIL) and Russian petrochemical firm Sibur’s joint venture Reliance Sibur Elastomers Private Limited (RSEPL) will build South Asia’s first halogenated butyl rubber (HBR) unit at RIL’s integrated petrochemical plant in Jamnagar, expected to be commissioned by 2018.
The facility will be producing 60,000 tonnes yearly of HBR, a key ingredient for manufacturing inner liners of tubeless tyres, as well as in the manufacture of pharmaceutical closures and tank inner liners. The joint venture is also constructing a 120,000 tonnes/year butyl rubber plant at the same site to provide necessary butyl rubber feed to the halogenation unit.
Sabic and ExxonMobil’s US$3.4 billion joint venture, Al-Jubail Petrochemical Company (KEMYA), is expected to start commercial operations in the first quarter of this year as announced by the partner companies in October last year.
The 50:50 joint venture plant has the capacity to produce more than 400,000 tonnes/year of halobutyl, styrene-butadiene, polybutadiene, thermoplastics and carbon black; and will be supplying markets in Europe, Middle East, Africa and Asia.
A synergistic partnership has likewise transpired between Japan’s Sumitomo Chemical and Zeon Corporation to integrate the two firms’ SSBR businesses. The Tokyo-located joint venture, ZS Elastomer (ZSE), with a start-up capital of US$4 million will carry out R&D, manufacturing and processing of SSBR; as well as buying and selling the material for the production of low rolling-resistance tyres. Zeon Corporation owns 60% of the joint venture, while Sumitomo Corporation owns the rest of the 40% share. The joint venture is expected to be launched in April this year.
Last but not the least, Saudi Arabia stateowned petrochemicals firm Saudi Aramco and German speciality chemicals company Lanxess have also joined forces to form synthetic
rubber company Arlanxeo. The EUR2.75 billion joint venture is commissioned for the development, production, marketing, sale and distribution of synthetic rubbers used in tyres, automotive parts and an array of other applications.
The Netherlands-headquartered Arlanxeo has recently established a rubber technology centre in China’s Changzhou National Hi-Tech District (CND), housing five laboratories, each with advanced facilities. The centre is aimed to hone China and the rest of Asia as “serious” players in terms of R&D into rubber.
Thus, the consolidated efforts of industry players are securing a sturdy market for synthetic rubber, projected to be worth over US$45 million by 2023, amidst the challenges at its fore – for the benefit of end-users.