CLEVELAND—Tire and synthetic rubber companies share a common problem when it comes to setting prices: They have no real control over the dynamics of the marketplace.
“The tire market has essentially no impact on the cost of its raw materials,” according to Bill Hyde, director of C4 olefins and elastomers for Chemical Market Associates Inc. “You are very much price takers.”
Hyde, talking about tire raw materials on Sept. 22 at the International Tire Exhibition & Conference in Cleveland, said tire makers do have a significant influence on the price of synthetic rubber, “but you have no influence on the price of synthetic rubber feedstock.” And neither, he said, do the SR producers.
That means tire manufacturers and their SR suppliers have to roll with the vagaries of feedstock producers. When you're considering a vital chemical for styrene-butadiene and polybutadiene rubbers like butadiene, which is not plentiful in the U.S., the result is high costs for SR and tire makers, Hyde said.
There is a significant shortage of butadiene in North America for SBR and PBR producers, he said. “The ethylene crackers here are moving to more of a natural gas than a crude oil focus,” he said. That has hurt raw material production for SBR and PBR companies.
The only way to meet the need for the feedstock is by imports, which raises the cost of making the rubbers and, therefore, the raw material cost for tire makers, Hyde said.
He doesn't see that situation changing much. Nor does he expect natural rubber prices to change.
“Natural rubber demand is growing fairly aggressively. And it's not easy to expand the NR planting, and it takes years after planting before you get any significant production.”
Hyde said weather “wasn't cooperating in Asia” this year, and inventories of NR have dropped.
“It appears the NR market is going to stay fairly snug,” he said.
For the remainder of 2010, however, the CMAI analyst said he expects raw material prices for the tire makers to show some relief in the U.S., while pricing in Europe will be down and in Asia pretty flat.
Asia, Hyde said, is the big player today and in the future for SBR and PBR.
“Clearly, Asia is the most important region, and China is the most important part of Asia,” he said.
According to Hyde, starting this year through 2014, about 60 percent of the new SR capacity in the world will be built in China alone. Yet while China will be producing more rubber in the future, he said, it will remain a net importer—quite important to many of the world's SR companies, which have added capacity with the idea of supplying the Chinese market.
“For many rubber producers it would be a worst-case nightmare scenario if the Chinese market suddenly became a net exporter of SR, because so much of the trade pattern is set up to go the other way.”
Concerning the global economy, Hyde said cold economic facts show that the severe recession of late 2008-09 is over. However, people in the tire and related industries look at their numbers and say “it's over, but I don't see it.”
“The recovery is real and sustainable,” Hyde said. “It's not very exciting.”
While CMAI has an alternate scenario that is a little more dire, Hyde said even that view doesn't forecast a return to a major downturn in the economy.
“We don't anticipate the dreaded double-dip recession,” he said.