The U.S. rubber industry is in a tough position.
Pricing for raw materials is at record levels, material supply is tight and energy costs remain high. Those are facts of life in many manufacturing sectors today, according to Bill Hyde, a consultant for Chemical Market Associates Inc. in Houston.
The rubber product manufacturing business has been hit especially hard, he said in an interview after he gave a speech on energy and commodity chemical prices at the July 25-26 International Latex Conference, held in Charlotte, N.C.
The good news is things will improve. The tight supply situation has been in place for the last two years, and for the next six to 12 months Hyde said he expects more of the same along with volatile prices.
``Beyond that, I think cost drivers ought to be better and things will improve, especially in terms of butadiene,'' he said. ``It won't be great, but it will be better.''
Eventually, the rubber industry should be comfortable but not in a surplus situation, he said. A lot of butadiene capacity is scheduled to come on line in Asia in the not too distant future, which should ease the poor supply situation, Hyde said.
In terms of prices of synthetic latex raw materials, he said in his presentation that they appear to have peaked and may in fact be decreasing. ``This market shift has been a long time coming,'' he said.
Hyde noted that most synthetic latices fall into three categories: styrene-butadiene, acrylic and vinyl ester. ``Producers consume a variety of commodity petrochemicals as their feedstock, including ethylene, propylene, butadiene, styrene and methanol. The cost of these raw materials is the most significant component of latex production costs, comprising between 75 and 85 percent of the total.''
However, he said, synthetic latex is not the dominant use for those raw materials, and latex products comprise only about 12 percent of the materials' total market. That means supply, demand and pricing of the materials often are determined by conditions in other markets.
The current trend of slight decreases in material pricing for synthetic latex should-but it won't likely-take place rapidly, Hyde said. ``In some cases, it will be 2008 before significant prices reductions take place.''
He said high energy prices will prevent the prices for materials from falling to levels seen in the mid-1990s and that ``light olefin prices and margins will be strong for the next few years before cost-advantaged capacity starts up in the Middle East.''