Medical, construction likely to spur silicones market

Silicones are projected to grow at 4.5 percent per year through 2020, becoming a more than $4 billion industry in the U.S.

Speaking at the 2016 International Silicone Conference in Fairlawn on May 17, Kent Furst—an industry analyst with the Freedonia Group—detailed how silicones in the U.S. have been affected by major economic trends. He cited strong projected growth in medical and ongoing recovery in the construction market as primary factors for the projected five-year growth.

He added that the consumer industry will be the slowest growing market going forward as it includes many highly mature applications.

“Overall the U.S. silicones market is back in growth mode having recovered from the great recession,” Furst said. “Over the next decade we are expecting overall demand in silicones to rise in line with the U.S. economy.”

Six key players combine for a 90 percent market share—Dow Corning Corp., Momentive Inc., Wacker A.G., Shin-Etsu Chemical Co. Ltd., Bluestar Silicones and Evonik A.G.

Nearly all silicone markets in the U.S. grew until the recession, where industrial and construction were hit hard while medical and consumer were largely unaffected. Furst said industrial and construction bounced back in recent years, with industrial coming around right after the recession and construction turning around in 2012.

In 2015, the U.S. economy grew 2.4 percent adjusted for inflation, matching the increase from 2014. Furst said more recent data is not as optimistic. GDP for the last quarter of 2015 was only 1.4 percent and just 0.5 percent in the first quarter of 2016. He said economic growth is expected to average 2.3 percent per year through 2020, with silicones expected to rise in line with GDP growth during that same span.

Silicone growth lagged GDP growth in the early 2000s, but mostly followed it in the middle part of the decade, Furst said. The recession from 2007-09 hit silicones much harder than the overall economy, with drop-offs in construction and automotive as primary factors.

Manufacturing fell during the recession in the early 2000s, grew in the mid-2000s and then plummeted during the great recession from 2008-09. While manufacturing has grown continuously from 2010-15, Furst said output is still below what it was at the turn of the century.

He also noted that the recent reshoring trend is overblown to some extent, and it's likely that manufacturing activity will grow slowly going forward.

“There's been a lot of talk in recent years about the reshoring trend,” Furst said. “Our data shows that this trend is not likely to result in a resurgence in American manufacturing. Manufacturing output only will increase about 1 percent in real terms through 2020. Although compared to the virtually flat growth from 2000 to 2015, this will be a slight improvement.”

Industrial silicones lagged manufacturing output during the early to mid-2000s thanks largely to declines in key markets such as electronics, textiles and paper. Furst said industrial silicones are expected to remain strong in 2020, benefiting from an increased use of silicones in motor vehicles and machinery.

Furst said motor vehicles are the largest portion of industrial silicone demand. Production and sales are very volatile from year-to-year. Demand plummeted during the recession, only to bounce back by 2015. However, the analyst said this growth is not likely to last.

“The number of vehicles in use per capita is largely flat since most everyone owns a car, and there is little room for future growth,” he said. “As a result, population, which is growing at less than 1 percent per year, serves as a cap for the motor vehicle industry.”

While the rebound from 2010-15 has been a good trend for automotive, Furst said that it also means a large portion of the population owns newer cars and will not be in the market to buy again anytime soon. Other factors limiting automotive growth include a longer life span for newer generation vehicles—thus causing them to be replaced less often—and that the number of miles driven has declined as a result of an aging population.

As a result, the analyst projects motor vehicle sales to decline through 2020, but production will rise moderately.

“Silicones have mostly outpaced motor vehicle production over the past 15 years,” Furst said. “Silicones will continue to see strong demand on a per-vehicle basis going forward, driven in large part by rising fuel efficiency standards.”

Growth rates for silicones in the U.S. medical industry have bounced around in the last 15 years, but Furst said demand remained strong throughout. Contrary to every other major market, silicones serving the medical industry scarcely were affected by the recession because medical product shipments remained consistent throughout the downturn. Re-approval of silicone breast implants in 2005 also helped boost demand.

He said growth is projected to outpace medical products overall and continue to take share from rubber and plastic materials. These factors should lead to medical being the fastest growing silicone market in the next five years.

“Silicones have numerous benefits in medical applications, including biocompatibility, optical clarity, soft touch, moldability and ease of sterilization,” he said.

Construction also will be one of the fastest growing industries because of the rebound from the great recession. Furst said the industry nosedived in two phases during the recession—the first in the residential sector after the housing bubble collapsed, beginning in 2005. New residential building didn't recover until 2012. The second phase, non-residential building, didn't begin to delince until after the recession hit in 2008 and continued through 2013.

For silicones, Furst said demand is split relatively evenly between new construction and improvement/repair as well as residential vs. non-residential in terms of intensity of use.

“Since the construction industry has just started to recover, growth will be strong through 2020 with the fastest gains in the new housing segment, which is still at very low levels,” Furst said. “However, even by 2025 most segments of the construction industry will remain below their peak 2005 levels.”

He said the personal care industry saw steady growth over the last 15 years, aside from a slight decline in 2009. Furst said the market benefited from a move toward higher value silicones as a replacement for D4 and D5 in personal care products as well as trends toward multi-functional ingredients.

However, he said going forward silicones in personal care products will rise at a below average pace compared to silicones overall mostly because of slow growth in U.S. toiletry and cosmetic shipments, expected to rise only about 1 percent per year.

The U.S. exports silicones to a wide range of countries. Furst said the largest in 2015 were Belgium, Mexico, China and the Netherlands; however 18 other countries bought at least $12 million of U.S.-made silicones.

While both imports and exports rose steadily from 2001-15, export levels increased substantially more, and net exports more than tripled over the last 15 years because demand has been stronger in foreign markets than it's been in the U.S.

A rebound in the domestic market combined with overseas capacity has served to limit silicone exports from the U.S. while boosting imports, Furst said.

Through 2020, imports and exports of silicones are projected to rise, boosted by the quality and technology advantages of U.S.-based silicone producers. He said that while China imports have increased 20 fold over the past 10 years, the country still only accounts for about 5 percent of total imports, while Germany and Japan—high income countries with higher quality standards—combine to account for 60 percent of imports. He added that Canada and other Western European countries also hold a significant share of the import market.

“This is evidence that product quality is more important to silicone customers than price, and China is not quite ready to compete on that front right now,” Furst said.