IISRP sees growth for SBS elastomers, other outlooks not so certain

HOUSTON—Forecasting market trends is no easy matter. All factors may point in a certain direction, but then something happens that turns the predictions upside down.

Certain ebbs and flows of the synthetic rubber market since the start of the COVID-19 pandemic have shown this theory to be true.

Take the beginning of the novel coronavirus breakout in early 2020, and how most industrial output initially fell off a cliff.

"During the pandemic, we released a forecast, considering all the data to forecast consumption," said Roxanna Petrovic, general director of programs for the Houston-based International Institute of Synthetic Rubber Products.

"Our estimation during that time was that the drop of consumption would be quite high. After these estimations, we tracked the market. The drop wasn't as big as we thought, because China was a big player, and the recovery was very fast."

But fast-forward to 2022, and things once again didn't necessarily go as planned—but in a totally different manner.

Again, it was China that was at the center of the moving target of expectations. The nation's government in 2022 implemented a zero-COVID policy, mandating slowdowns in certain areas of the country.

"We see now, the recovery is taking longer," Petrovic said. "We thought the drop would be deeper and the recovery faster, but it's actually been the opposite."

A number of factors impacted 2022 market trends, IISRP said, including the lockdowns in China, the war in Eastern Europe and economic variables such as inflation and the prospects of a potential recession.

IISRP Managing Director Juan Ramon Salinas said in terms of synthetic rubber, in certain ways business levels in China last year tracked properly, following market trends.

"In general terms, the rubber industry in China was working OK," he said in a Rubber News interview with him and Petrovic.

The IISRP will watch China closely during the first quarter to see if restrictions slow down following the Lunar New Year, Petrovic said.

Salinas said one elastomer area expected to show steady growth is SBS block copolymers, which kept good momentum even throughout the pandemic.

This material family is used in the building and construction of infrastructure, which Petrovic said has been a key point for growth prospects.

The IISRP is anticipating significant additional capacity for SBCs—over 500,000 metric tons—during the 2023-25 time frame, mainly in China and rest of Asia. But there could be delays in some projects because of developments around the world, including the Ukraine conflict and a potentially slowing economy.

Nitrile rubber also has been pretty steady in recent years, according to Petrovic.

"What has been happening with NBR is they are keeping a very good balance between supply and demand," she said. "We haven't seen a lot of oversupply issues for NBR. We haven't seen a lot of (new) capacity in the last five years or so, and that has kept the market in good balance."

There has been growth, though, starting with ballooning demand for nitrile gloves as COVID-19 took hold.

As most of the demand and supply traditionally has been in the Asia-Pacific region, she said that has changed somewhat as the pandemic caused growing demand in different regions, including the U.S., as supply chain issues caused tight supply.

"I don't see that there will be a lot of investments in terms of capacity," Petrovic said. "I think they're keeping a pretty good balance."

Salinas said in general capacity utilization rates have improved across the mix of synthetic rubbers.

"I think the tire rubbers are where the numbers are lower compared with other elastomer types," he said. "Numbers are better because consumption is improving and the recovery of consumption is improving. But consumption is improving lower than we predicted before."

While production rates are better than in 2020, Petrovic said everyone wants to know when SR consumption will return to the pre-pandemic levels of 2019. She said SBS and other block copolymers likely are the only ones to reach that at this point because of the tie to infrastructure projects.

"Other elastomers linked to the automotive industry, we see a lot of delay in that. At least a year," she said. "If all goes well, maybe by the end of 2023, or the beginning of 2024."

While solution SBR has been struggling some because a lot of capacity came on stream shortly before the COVID slowdown, the material is starting to get back to where the market levels had been. Plus, the future for SSBR will benefit from the movement toward electric vehicles.

Conventional wisdom says that EVs will require high-performance tires and elastomer materials for other rubber goods.

Growth of EVs is expected to be faster in Europe than in China and North America, but Petrovic is one who thinks the projections are ambitious. Considering the possibility of slowing economies and the uncertainties caused by Russia's invasion of Ukraine, the IISRP said a return to pre-pandemic levels may come a year later than expected.

"We know solution SBR will continue to grow, driven by electrical vehicle strength," she said, "but I don't believe it will grow at the same pace as EVs are now forecast to be."

And the IISRP knows all too well how tough predicting the future can be.