For the second time in less than four years, the silicone market is in upheaval, with demand outrunning capacity, logistical problems clogging supply lines and prices for the versatile elastomer soaring.
At the heart of the problem has been the uncertainty wrought by the pandemic, as major producers of silicone monomer, the building blocks for silicone, have seen demand come back strong with the reopening of the world's largest economy, China, followed by North America.
Add to that a possible $1.2 trillion infrastructure bill being passed in the U.S. and the associated leap in the construction industry where silicone gaskets have wide use, and you have a perfect storm, as one industry expert called it, for the silicone market today.
Thus far, the major producers (Dow, Momentive, Elkem, Shin-Etsu and Wacker) have delayed adding capacity, after saying that capital improvements were a possibility following the first period of silicone market volatility in 2017-18. While most global monomer production takes place in Asia, North American producers have hesitated to over-produce, lest demand falls and prices drop.
The result for many domestic silicone customers is that their product must be imported from Asia, where demand already is skyrocketing, and thus fall victim to high prices, tariffs and supply line challenges, where freighters are waiting to offload product. In other cases, what product there is out there often is waiting for a crate for shipment.
If adding capacity is the answer, these major producers cannot do it overnight. Installation of meter mixers—the key equipment that ensures silicone production with the same recipe, every time—often takes a year or more.
One industry expert likened their capacity restarts to a heavy train that grinds to a halt—and then takes time to gain speed and momentum once again.
Had these producers followed through and addressed the capacity problem in 2017-18, perhaps this second wave of market volatility could have been avoided. Conversely, in a capital market, these major producers are asking themselves whether such capital improvements are worth the expense.
But therein lies another problem: Is this second wave being caused by producers playing "catch up," as some have suggested, where demand actually is no higher than three-and-a-half years ago?
Or is it a case where demand is now much higher overall?
Either way, market experts predict that demand for silicone will continue to increase, and this bodes well for a lucrative market—for both fabricators and the major producers.
According to the IMARC Group, the global silicones market reached a value of between $14 billion and $15 billion in 2020, and predicts the silicone industry could reach between $23 billion and $24 billion globally by 2025.
And while the major producers have the right to add or eschew increased capacity, their middle market customers have every right to consider alternate materials that are perhaps not as ideal for certain applications but are more readily available to meet the needs of their own downstream customers.