Synthos gets SSBR boost with Trinseo deal

KNOXVILLE, Tenn.—It's definitely been a busy year on the synthetic rubber side of Poland's Synthos S.A., with the material supplier looking to forge a new path forward in the sector.

During that time, Oswiecim, Poland-based Synthos bolstered its place among the top rung of global SR producers by closing on the acquisition of the synthetic rubber assets of Trinseo S.A.; spent much energy working to integrate that operation, including a major factory in Schkopau, Germany; and revealed plans to boost its butadiene rubber, including recommissioning a facility Trinseo had mothballed.

And that's not to mention having to deal with the growing uncertainty in Europe caused by the Russian invasion of Ukraine, a war that has found Synthos doing what it can to support the European industrial base and also support the citizens of its neighboring Ukraine.

The conflict also has left Europe in a deep energy crisis that has prompted Synthos to temporarily reduce production of emulsion SBR by 30 percent.

"At the very beginning, especially in that part of the world, we were all caught by surprise (by the invasion)," said Matteo Marchisio, director of tire materials and the synthetic rubber business unit for Synthos. "Our organization has been very supportive to those who are victims of this situation."

Despite all the disruptions in the tire and rubber business, Marchisio said Synthos has kept its focus on remaking its SR operations into what he likes to call "Synthos 2.0."

Synthos already was one of the largest European producers of synthetic rubber before paying about $460 million for the Trinseo business, but it competed more on the commodity side of the business. It eventually developed a polybutadiene that was a specialty grade, but Synthos still lacked a presence in the supply of solution SBR.

It attempted to go its own way by producing an SSBR line under license from Goodyear. But Marchisio said the material was what the industry called a first-generation SSBR, rather than the functionalized grades needed to compete at a high level.

"In tire applications, the speed of progress is that fast. You move to more advanced grades very fast, and the road to those grades is super protected in terms of intellectual property. It was tough to do on our own," Marchisio told Rubber News during the ACS Rubber Division's International Elastomer Conference in Knoxville.

That was what made the purchase of the Trinseo SR business so intriguing. Trinseo's factory in Schkopau, Germany, brought with it 130,000 metric tons of annual capacity for ESBR, but also 200,000 tons of the coveted SSBR.

This complemented the production Synthos had at its own plants in Poland and the Czech Republic, and gives it a current overall capability to supply 840,000 tons of synthetic rubber a year. That would make Synthos the No. 7 global SR supplier in terms of overall capacity, according to data from the International Institute of Synthetic Rubber Producers.

To top it off, Synthos also received a polybutadiene plant in Schkopau that Trinseo had closed in 2020. The Polish firm said it plans to resume operations there in early 2023, adding 30,000 tons of BR capacity a year, which will be bolstered by an expanded output of 20,000 tons at its facility in Kralupy, Czech Republic, through a debottlenecking project.

"Polybutadiene is a very appreciated grade by the tire industry," Marchisio said. "We have the technology and know-how on how to recommission and make these volumes in the market.

"These days polybutadiene is short not only in Europe but generally in the world. By adding capacity in our Czech plant and recommissioning the German installation, we will bring our customers 50 percent more polybutadiene than what we could offer this year."

The Synthos executive said this is a major way his firm is showing support for European tire manufacturers. Russia had exported a substantial amount of polybutadiene each year, and that is becoming less available, "not because there are sanctions imposed by the European Commission against Russian polybutadiene, but because the sentiment of European tire manufacturers for Russian imported raw materials has changed."

Synthos plans to have the first volumes of polybutadiene available at the end of this year, Marchisio said, allowing customers to have products approved in the first quarter of 2023 and commercialized by the second quarter.

The head of the Synthos SR business unit estimates the integration of the Trinseo purchase is 80-percent complete, and that all has gone smoothly to this point. Much of that can be credited to having two strong organizations that were doing well within their product areas.

Marchisio likened it to two "tectonic plates" coming together.

"At the very beginning, you may have some initial moments when these two big organizations get together and you need to find the positioning," he said. "But I think the integration and the way to work together got finished faster than expected."

It was clear from the start this wasn't a standard acquisition, the Synthos exec said. It was an asset purchase agreement, where assets, contracts and employees transferred to Synthos. The two were competitors in the market, and couldn't be assured clearance from the European Antitrust Commission would be granted.

In the meantime, the two organizations had to prepare to come together seamlessly. That included implementing an ERP system, but using only fake data because no information could be shared.

"Both organizations without any assurance that the deal would go through, made an enormous effort in making it happen," Marchisio said. "This was a very strong effort made by the organizations.

"... The only target for all people involved was to ensure customers could get products on time, in a very stressed market in terms of availability and in terms of logistics and supply."

He believes Synthos truly took the best of the two companies in the integration process. He noted that the marketing and R&D directors both came from Trinseo, with the commercial director hailing from Synthos.

Russia's unprovoked invasion of Ukraine has had a great impact on not only the business of Synthos, but its employees as well.

Shortly after the first attacks, Synthos posted a message on its website titled "We Stand with Ukraine." In it, the firm pledged support to all the citizens of Ukraine, saying that all must act in solidarity to support Ukrainian citizens, as well as help them by offering employment.

"Every act of charity is essential, whether it's a small, spontaneous gesture or a major international initiative," the message said.

Marchisio said the main Synthos Group owner had businesses with operations in Ukraine, and was very active in supporting its own employees there.

"He set up an emergency corner within his organization. Our warehouses have been used to collect whatever materials are needed to support Ukrainian people working within group companies," Marchisio said.

The head of the SR business also told a story of how the staff of Synthos showed there could be cooperation among people, no matter the nationalities. He said a Synthos manager of Russian descent was in charge of supporting a Ukrainian tire manufacturer, which was a small customer.

When the tire maker wanted to resume operations, it obviously couldn't source rubber from Russia, as it had prior to the invasion. The account manager proactively supported the tire manufacturer in supplying Synthos SR that allowed the firm to produce tires to support the Ukrainian effort.

"It's a good example that it's about people, not about political ideas," Marchisio said. "It is a very clear example of how people can make a difference."

Synthos staff at its operations in Poland and Germany also made an impact on a very personal level, said Marjolein Groeneweg, the firm's senior global marketing leader. Employees in Poland have taken in refugees, and families from the Schkopau factory took in 25 refugees from one busload.

"This is something that matters," Groeneweg said. "Business, of course, is very important, but I think especially when you're very close (in proximity), that business alone is not the only thing."

The supply chain difficulties that Synthos had seen across all continents has eased to a certain extent, and the availability of raw materials has improved, according to Marchisio. Probably the "busiest lane" in terms of moving product continues to be from Europe to the U.S., making such shipments costly.

The energy crisis, also brought on by the Russian invasion, has caused Synthos to cut back its production of ESBR by 30 percent, which would amount to about 100,000 tons over a year. The cost of producing the synthetic rubber line, which is energy intensive, can't compete presently with products where the cost position is cheaper.

"We believe it is a temporary situation," he said. "It's not a question of making product unavailable to our customers, because you can reset your operating rate pretty quickly. And we always keep enough stock level to satisfy demand wherever necessary."

Despite the logistics of shipping materials to North America, Marchisio said Synthos definitely sees growth opportunities on the continent, both for tires and other rubber goods. He said the team, which has a sales office in Cleveland, visited a number of U.S. tire manufacturers prior to the IEC in Knoxville.

Groeneweg added that Synthos' larger SSBR capabilities with the Trinseo deal will be beneficial to gaining a greater foothold in the U.S.

One troubling situation that Synthos has had to deal with is the push to get antidumping tariffs assessed on ESBR brought in from the Czech Republic, Marchisio said. Hearings on the matter are scheduled Nov. 8 before the U.S. International Trade Commission. Synthos currently is paying a temporary duty pending the outcome of the investigation.

He added that a number of options for ESBR supply in various regions have dried up in recent years. In addition, one tire maker uses all of the ESBR it produces, and some tire firms might not want to buy from another competing tire major that does sell some of its capacity on the open market.

"We see more and more customers willing to provide testimony, because you don't like it if you are left with a very limited amount of competition to source from," Marchisio said.

Synthos will be represented at the hearing by its U.S. sales director.