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February 07, 2019 01:00 AM

Silicone sector continues to face market pressures

Rubber & Plastics News Staff
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    The new year for the silicone rubber industry began much like 2018 ended, with short supply, higher prices and uncertainty about when market conditions may brighten.

    The first week of 2019 actually brought more bad news as Wacker Chemie A.G. suffered a mechanical breakdown at its facility in Burghausen, Germany, forcing one of the world's top silicone suppliers to declare force majeure on all of its HCR grades.

    That doesn't mean there isn't some good news to report. Participants from suppliers to producers say the sector has a slightly better handle on supply than last year. That is particularly true on the liquid silicone rubber side of the business, while most say the HCR silicone segment still is far from fully supplied.

    At the crux of the dilemma has been a market that has seen rising fortunes for several years, while material suppliers have been slow to add capacity to keep up, in some cases actually taking supply out of the market. One silicone product maker said most of the shortages can be traced to the basic raw material siloxane, with none of the major suppliers investing to add assets for this crucial building block in the past decade.

    There are signs that some investments are forthcoming. Dow Chemical, Shin-Etsu Chemical and Wacker are among those announcing expansions of differing degrees in recent months. The problem for their customers, however, is that the time from the announcement to when additional silicone actually will be available in the market can range up to several years. In short, that means there's not a lot of help expected on the horizon for 2019.

    In the meantime, prices continue to spike by some startling percentages. Processors are saying the amounts have been unprecedented, with past normal increases of 3-6 percent turning into 2018 price hikes of 8-15 percent. One silicone mixer reported one supplier had enacted increases as high as 60 percent.

    Worse yet, while some of the silicone users have been able to pass some of the price increases along to its customers, they say they likely will end up eating a good portion of the increases. And even as pricing shows some signs of stabilizing, those buying silicone don't expect to see their suppliers roll back any of the increases.

    One potential bright spot is that the Chinese market has softened slightly, so there could be a possibility of more supply coming to North America. That is, of course, as long as tariffs don't keep pushing prices up for materials coming from China.

    Everyone along the supply chain has reported that communication with customers and in-depth planning have been key to ease the pain during the silicone market's turbulent times. Those with a long history buying silicone report having better luck in ensuring a stable supply so they in turn can keep their customers happy.

    While some want to avoid turning to alternative materials—for example switching to an LSR from an HCR—others say they are having good luck working with customers in tweaking formulations and processes in this manner.

    The one thing most agree on is there is no way to predict when the supply/pricing situation will ease up in any meaningful way. As one executive said: "I'm from Missouri, so you'll have to show me."

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