Feedstock costs have risen dramatically over the last two years, accounting for between 75 and 85 percent of the cost of producing synthetic latex, but there may be a light at the end of the tunnel.
``The days of relatively inexpensive energy and petrochemicals appear to be behind us,'' according to Bill Hyde, a consultant for Houston-based Chemical Market Associates Inc.
``However, prices for those commodities appear to have reached a peak in 2005,'' or in some cases will do so in 2006, and will soon begin to decline, he said.
Latex producers can look forward to lower energy and feedstock costs, he told attendees of the International Latex Conference, especially toward the end of the decade. Hyde was at the conference to present a paper, ``Elevated Energy and Commodity Chemical Costs: How Long Can They Last.''
Monomers used to produce synthetic latex include butadiene, styrene, ethylene, propylene, benzene and methanol, he said.
The supply of butadiene, a key ingredient in synthetic latex, has been tight for the last two years, Hyde said after his presentation. That has been primarily caused by increased demand in Asia.
In addition, ``we've had U.S. producers running at lower than anticipated operating rates,'' he said, because the largest producers have had more than their share of unplanned operating problems.
Because of the strong Asian demand and high spot prices, U.S. and European butadiene producers have been able to sell the material into Asia on an export basis at higher prices than domestic consumers are willing to pay, according to Hyde.
That was the case in 2004. China is a big consumer, but South Korea and Taiwan also need a lot of the material.
``The latex industry is made up of generally smaller consumers and (usually) supplied by rail car shipments,'' Hyde said. ``What happens is from time to time one of the producers that's supplying them has operating problems and because of the rail logistics, consumers have limited options to go to other producers. You can try to go to another supply source but chances are that company is sold out, too.''
Because butadiene producers have been running at less than projections in the U.S., it has been difficult for companies to get the material, he said.
``There hasn't been material available to import at reasonable economics for most of these companies so they struggle through the best that they can,'' Hyde said.
Butadiene availability should start to improve in the fourth quarter or early in the first quarter of 2006 because additional capacity will come on the market, he said.
``It won't be loose by any means, but we do think that some of the extreme tightness will ease.''