On the agenda: 7 to watch in 2018

It's always an eventful year in the rubber industry.

Just because 2017 is in the books doesn't mean the effects are gone, as many of the year's big stories have already trickled into the current year and are expected to have a wide impact.

Here's what RPN thinks will be on the agenda for 2018.

1. Trump pushing forward

Love him, hate him, it doesn't matter. President Donald Trump has made some bold moves in 2017 and doesn't look like he's slowing down.

The Republicans closed 2017 with their biggest legislative win under Trump when they passed the Tax Cuts and Jobs act, bringing an overhaul to the U.S. tax system and giving businesses a significant tax break.

Going forward, however, the Trump Administration likely is going to take a close look at free trade agreements, specifically NAFTA. How the administration intends to renegotiate the deal remains unclear, but any changes to the longstanding agreement certainly will affect the long complex supply chains of major original equipment manufacturers, and in turn the rubber product makers that supply them.

The administration also seems ready to move on an infrastructure overhaul, with some Democratic leaders expressing the odds as a lot better than 50-50 as to whether or not the bill gets done in 2018. The president recently expressed doubts over whether or not public-private partnerships will work to rebuild aging roads and structures.

On the campaign trail and shortly after his election, Trump preached a $1 trillion overhaul. Whether the bill will go that far—or if it gets done at all—remains to be seen.

2. Gates' IPO

One of the industry's largest non-tire companies began selling shares Jan. 25 after filing its initial registration for an initial public offering earlier in the month.

The filing didn't include the total number of shares to be issued, but Gates ended up offering 38.5 million ordinary shares at a price of $19 per share, valuing its initial public offering at $731.5 million.

Net proceeds from the offering will be used to redeem $283.1 million of its 5.75 percent senior notes and an additional number of its 6 percent senior notes, both due in 2022, Gates said. If there are any leftover proceeds, they will be used to repay other outstanding indebtedness.

Gates said in the filing its current indebtedness is about $3.92 billion.

3. Commercializing alternative NR sources

It seems as if the industry has found viable sources of natural rubber; now the hard part is making sure there's enough to sustain production needs.

Cooper Tire & Rubber Co.—one of many tire companies exploring alternative options—completed its five-year, $6.9 million Biomass Research and Development Initiative grant on guayule rubber in August. The firm said based on its findings, Cooper could use the material in tire production immediately if enough was available at a competitive price.

General Motors Co. threw its hat in the ring last summer, when it partnered with the world's four largest tire makers—Bridgestone, Michelin, Goodyear and Continental, respectively—to develop a plan to source more rubber through environmentally sound and sustainable natural rubber production methods.

Commercialization at the scale of the tire industry is a big leap, but the first steps are being taken. Cooper said guayule producer PanAridus was able to make the rubber in quantities never before achieved thanks to improved strains of the plant.

4. Continental's restructuring

Automotive suppliers are bracing for rapid change to their industry and Continental A.G. could be the latest such company to undergo a drastic makeover.

The firm confirmed reports that it is considering options to restructure its business portfolio, which currently consists of five divisions and two groups—Rubber and Automotive.

While plans were not disclosed, recent moves by similar automotive suppliers Delphi and ZF Friedrichshafen A.G. resulted in a greater focus on autonomous technology. Continental's Automotive Group concentrates on those kind of products, among others, while its Rubber Group focuses on its tire and non-tire rubber offerings.

5. Smart technology

Autonomous vehicles aren't the only things getting smarter. Rubber product makers continue to find ways to make their products more responsive to trends.

Sensors in seals and hoses giving users instant performance feedback—not to mention smart tires that can communicate with the vehicle—are two examples. But the automotive industry isn't the only one embracing smart tech. The medical field continues to push the boundaries on wearable and in-home monitoring devices to ease the burden on both patients and hospitals.

6. Toyoda Gosei branching out

Add another automotive supplier to the growing list of those bracing for autonomous and electrification technology.

Toyoda Gosei Co.—a supplier of plastic moldings, sealing strips, brake hoses and resin interior parts—expressed its desire to branch out into new products. The firm's President Naoki Miyazaki said recently that TG is targeting next-generation technologies like sensor-compatible body paneling, advanced airbags and lightweight resin parts.

It's also looking to continue evolving within its current product base, seeing potential for better weatherstrips, radiator grilles and front fascia body panels to accommodate bundles of sensors that will go into next-generation safety systems.

7. Seller's market

Mergers and acquisitions are always something to keep an eye on, but 2018 could be particularly competitive.

Bill Ridenour, founder of North Carolina-based Polymer Transaction Advisors, said in a recent Crain's Cleveland Business article that pricing is the highest that it's ever been, in terms of multiple of earnings, for polymer or specialty chemical companies. He expects the horizon to be busy with competition for smaller firms driving up the price.

Lightweighting in the automotive industry, companies looking for new supplies of raw materials and bigger corporations looking to either extend their product lines or enter new market niches, combined with a limited amount of sellers, low interest rates and a windfall of acquisition capital for many buyers—likely even more so in light of the new tax law—adds up to a market favoring existing owners.