Global silicone market set to grow through 2021

Global silicone demand is expected to grow about 5 percent in value terms and 3 percent in volume terms annually through 2021, according to Kent Furst, Freedonia Group manager of polymers and materials.

Furst, in an April 10 address to attendees of the 2018 International Silicone Conference in Cuyahoga Falls, Ohio, said the global market in that time will rise to more than $18 billion. Asia-Pacific will remain the largest and fastest-growing silicone market while price growth will accelerate.

His research covered the period from 2006-16. However, he added that 2017 was one of the best years for silicones in some time.

"There will be a shift going forward as China continues to produce more high-value products, with production of lower-valued goods moving toward India and Southeast Asia," Furst said. "In North America and Western Europe, manufacturing growth will remain slow. Despite the benefits from shale gas, North America still has high labor costs and modest economic growth relative to Asia."

Core markets for silicone will continue to be electronics, construction, transportation and medical/personal care, with electronics being the healthiest. Furst added that adhesives will be a key growth driver in the construction segment, and further applications for liquid silicone rubber will help growth on the medical side.

The top six suppliers—Dow Corning (now split between DowDuPont's Dow and DuPont units), Wacker, Momentive, Shin-Etsu, Elkem (formerly Bluestar) and Evonik, respectively—account for 80 percent of the market. And while mergers like Dow assuming full control of Dow Corning and merging with DuPont have changed the structure of the industry, Furst said the overall layout remains unaffected.

Pricing for key raw materials such as crude oil and silicon metal spiked in 2017. Furst said crude oil prices rose 25 percent and silicone metal increased by 20 percent in the U.S. In China, silicon metal prices rose by more than 30 percent.

Growth in mature markets like the U.S. and Western Europe will be slower than the rest of the world. Furst said U.S. silicone growth will rise roughly in line with GDP. Construction and manufacturing activity will slow but medical remains a strong growth driver. In 2017, silicones suffered a bit from the slight decline in motor vehicle production and construction also slowed down overall. Manufacturing activity grew overall.

"The U.S. is a very mature market for silicones with a very high level of demand per capita," Furst said. "Demand declined about 15 percent in 2009 at the peak of the recession. However, silicones rebounded fairly well out of the recession, outpacing GDP growth in most years as construction and motor vehicle production recovered."

In addition to the recession, Western Europe also dealt with a fiscal crisis that impacted demand from 2011-16. But in 2017, Furst said the region experienced a strong year thanks to growth in construction of about 4 percent and manufacturing activity up about 3 percent.

"Through to 2021, we expect a rebound to positive growth in all major markets for silicones, although growth will remain the slowest of any world region," Furst said.

Canada and Mexico represent a relatively small portion of the global silicones market. Furst said transportation is the largest market in each country.

"Going forward, silicones in Mexico will benefit from a strong increase in manufacturing activity," Furst said. "Canada, on the other hand, will experience relatively flat growth due in large part to a decline in motor vehicle production."

China continues to be the largest silicone market in volume terms and is just behind the U.S. in value terms, with its demand growth higher than its GDP thanks to a manufacturing heavy economy. Furst said China saw tremendous growth during the 2000s, even during the recession, because construction and motor vehicle grew faster than overall GDP.

Silicone demand has slowed in the 2010s because Furst said China's overall economy began to move away from silicone consuming industries like manufacturing and construction and into more service-focused industries.

"The silicone market in China will continue to lag behind GDP, but China will remain one of the world's fastest growing markets," Furst said of the country's prospects through 2021. "An important development in China over the last decade is the rapid rise of more domestic-based silicone producers, which are having an ever-greater influence on the global markets."

While China and India have grown as silicone consumers, production remains concentrated in high-income countries. Furst said nearly half of global silicone exports originate from Western Europe and another 30 percent come from the U.S. and Japan.

Most of the rest of the world are net importers of silicone, with China being the largest importing country by far. Furst said that while China is establishing more domestic production, the vast majority of that production is remaining in the country to satisfy domestic demand.

"The world is not being flooded by Chinese silicone, at least not yet," Furst said.

The silicone markets of Japan and South Korea are very similar. In Japan, Furst said silicones are growing at a very slow pace while South Korea is not quite as slow, but still well below the global average.

Electronics and motor vehicles are the dominant industries, but weakness in the motor vehicle industry will limit demand for silicones through 2021.

India and Taiwan, however, rank as the most dominant of the remaining Asia markets, combining for about 45 percent of demand.

Electronics and construction are the largest markets while automotive is less important. Furst said India will continue to be the strongest market with rapid growth for silicones among all markets and products, but demand will still remain small relative to the size of India's population and economy.

Taiwan is among the most mature markets, but Furst said it will continue to see solid growth in electronics applications.

"Silicone demand in these countries will benefit from a strong rise in industrial activity and consumer spending," Furst said.