KING CITY, Ontario—The weak dollar is having a major impact on the price of oil and everything derived from it.
Serious global competition is increasing for carbon black feedstocks produced in the Gulf Coast region.
The global shortage of natural rubber is easing.
Those are some of the opinions and observations about raw materials from a panel of experts at the Rubber Association of Canada's Tire & Rubber Summit, held July 16-17 in King City, near Toronto. The speakers gave reviews and forecasts on their specialties to the packed house of 75 participants from the tire and rubber industry, and related fields.
In most cases, raw materials used in the rubber industry start with oil, and Bill Hyde, director of C4 Olefins and Elastomers for Chemical Market Associates Inc., said that Houston-based research firm sees stability in oil prices for awhile. “We don't forecast $150 crude in the next few years. Roughly, oil prices will stay where they are today,” Hyde said.
The CMAI economists, in fact, predict a stable pricing situation for most materials used to produce tires.
“We think the commodity prices, and therefore the cost of producing tires, have pretty much reached their high-water mark,” he said. “We'll see relative stability moving forward, but stability at very high levels.”
As an example, Hyde said rubber product makers that use synthetic rubbers that have the letter “b” in their acronym—standing for butadiene—are hurting. Those are SRs such as SBR, PBR, SEBS and SBS.
Since butadiene is a co-product of ethylene, and as the economics for crude oil and natural gas have changed, “so has the raw materials used to produce ethylene,” he said. “That means they are making a lot less butadiene now.”
The result: scarcity, allocations and high butadiene costs, and therefore, lofty SR prices.
Carbon black production/pricing
A scarcity of, and competition for, oil-related feedstocks also has pushed up carbon black prices, according to Jacob Homiller. The business director for NAFTA rubber blacks for Boston-based Cabot Corp. said big expansions in the carbon black industry have been occurring in India, Thailand, Indonesia, Malaysia and South Korea, and 90 percent of the feedstock requirements for those plants comes from the Gulf Coast region.
As companies try to access good quality material from the Gulf Coast, that results is a lot of pricing pressure, Homiller said.
Boston-based Cabot itself has launched expansions overseas to increase its global capacity by 15 percent, at a cost of $180 million. In North America Cabot will spend $75 million in 2011, but Homiller said that will net only minor capacity increases.
Most of that spending will go to reliability, efficiency improvements and compliance in a region where environmental constraints and financial considerations will limit carbon black capacity growth for the next few years, he said.
NR supply, demand and prices
Growth of another kind—Hevea natural rubber trees—promises to alleviate a scarcity of that vital material, according to Greg Jagt, vice president of sales for Oakville, Ontario-based Astlett Rubber Inc., a trader and distributor of materials for the rubber industry.
NR prices have been at record levels for some time for a number of reasons, Jagt said, such as high demand from China, much wetter weather in the rubber-growing region and weakness of the U.S. dollar.
Another factor has been a lack of new tree plantings, up until 2005, Jagt said. But with prices rising that year, there was a surge of replanting and new planting of Hevea trees.
Since it takes seven years before a rubber tree can be tapped, 2012 will be the magic date when “we should see output ramp up significantly,” Jagt said.
NR always seems to be in a boom-or-bust cycle, he said, and prices today are just part of the current commodity price bubble, and will stay high—for now.
“Commodity prices are generally higher than the fundamentals warrant. This means prices will go through a declining period in the future,” he said.
The NR sector also faces some serious problems down the road, according to Jagt. Negative factors on the production of the raw material include: the possibility of leaf blight, confined so far to South America, spreading to Asia; climate change amplifying the rainy season; deforestation occurring as populations grow; and the effect of economic progress in rubber-growing regions.
“Only the poorest people tend to be rubber tappers,” he said. “As alternative jobs in factories rise, labor shortages could develop.”
Jagt said NR production is likely to move toward the Philippines, Cambodia and more remote Asian regions.