CLEVELAND—Global demand for industrial rubber products is expected to grow 6.6 percent a year and reach $158 billion in 2018, according to Freedonia Group Inc.'s study, World Industrial Rubber Products.
There are two big factors for the projected growth in the global market. The developing markets will continue to lead the charge over the next five years, said Ken Long, analyst at Freedonia, while developed markets will rebound.
China is set to post the strongest gains in any national market in value terms, he added, even though its economy has slowed down a bit.
“Developed markets, which have kind of been serious laggers as a whole over the last five years, are going to contribute more to the growth equation in the next five years,” Long said.
“Even though they are relatively slow growing markets, they are pretty sizable markets. And they use a lot of the more expensive rubber products that contribute to companies' bottom lines, so that's something that rubber product companies should consider as they move forward.”
Freedonia reported global sales will increase because of acceleration in fixed investment expenditures and expanding durable goods output as world economic conditions improve.
Competition from alternative materials in some applications will limit the overall pace of market growth through 2018.
For some applications, certain plastics can suffice in place of a rubber product, Long said. These products can offer certain performance benefits for a little less cost in many instances, so companies can make this switch.
A lot of global production is competitive in nature. If a company is making a large capital good, such as a car or a piece of industrial equipment, if a better quality product is made, the company gets a competitive edge, Long said.
For example, U.S. car production used to drive out the costs as much as possible, and if the quality suffered, so be it, he said. The U.S. companies “really got hammered” by Japanese auto companies in the 1980s and 1990s because of this practice, he said, so car companies could not go that route anymore.
Even in the consumer products industry, the focus is on quality, which was not as strong in the past, Long said. If a company is dealing with expensive products, cost is important, he added. But if it can show that over the course of the product's lifetime, the cost will be lower for the user, people understand that and accept it.
“That stuff comes home to roost if you don't take care of it, and I think more and more companies are seeing that, even in the consumer area,” Long said.
The economy has slowed down a bit in China, he said, but it is still registering at market gains that “any developed country would be very happy to have.”
China used to be a fairly small motor vehicle producer, he said, but now it has grown to be the biggest in the world. “And in five years, it is going to be bigger than the U.S., Japan and India combined, in terms of car production,” Long said.
China is a large producer of various kinds of industrial equipment, which will continue to grow and drive demand in China. “It's still a growing market even though it is huge right now and slowing somewhat, but still going at a pretty fast pace,” he said.
There continues to be investment in China. Although there has been a fair amount of publicity about reshoring in the U.S., Long said, in general, China is still a less expensive place to produce goods.
Domestic demand in China also is increasing as the standard of living rises and citizens who once could not afford a car now can. “This is a growing middle class,” he said.
Long said China will account for more than half of the total increase in demand through 2018.
Other developing markets
Some smaller markets—including Indonesia, Thailand, Malaysia, Turkey and Brazil—are expected to grow quickly.
In these economies—in particular Indonesia—car production has grown rapidly during the past 10 years, Long said. It will slow down again, as in China, but “it's just a fast growing market where there's a lot of production going on of the types of capital goods that use industrial rubber products,” he said.
In Thailand, many Japanese companies are opening plants, which has made the country a big automotive producer. Long said this will help contribute to the increase in rubber product demand.
India will continue to record large annual percentage increases, with demand forecast to rise 11 percent a year through 2018, according to Freedonia.
U.S. and Europe
The U.S. and Western Europe markets are significantly more mature than China and the other developing countries, and the U.S. continues to recover from the Great Recession.
Manufacturing is expected to accelerate in the U.S., Long said, which is probably attributed to reshoring and the improving economics of producing goods in the U.S. He said that part of this improvement includes fracking, which is reducing the cost of natural gas.
Compared to other developed parts of the world, Long said the U.S. is a low-cost developed country producer. This is going to help lead to an increase in manufacturing output in the U.S.
One area that will have moderate demand growth is in motor vehicle production, he said, because it has been healthy recently after going through a number of bad years. It now is expected to slow down. He said it is still going to increase, but it's going to be increasing from a base “much closer to the earlier peaks that we had in this country about 10 years ago.”
Western Europe has been having economic issues lately, but “we do anticipate there is going to be some recovery there, which is going to contribute to the increases for rubber product demand there,” Long said.
Eastern Europe will not see the growth that other developing regions will see.
Freedonia is forecasting 5.2 percent growth for Eastern Europe for the next five years versus 3 percent for Western Europe and 3.4 percent for North America.
The report costs $6,300. For more information visit www.freedoniagroup.com.