5 trends shaping the silicone industry

The first half of 2021 saw the global silicone market experiencing tight supply, soaring prices and escalating demand, especially in North America as demand continued to outrun capacity from domestic suppliers.

The second half of the year was not much better, with increasing supply line challenges, exacerbated by inflation, force majeures and upstream suppliers who are choosing to maximize cost markets rather than add capacity.

"I think many in the industry tried to chalk this latest round of silicone tightness up to the 'COVID effect,' when in reality this is still a capacity issue," said Erick Sharp, president and CEO of Ace Products and Consulting L.L.C., a Ravenna,Ohio-based lab, testing and consulting firm in the rubber industry. "This is going to be an ongoing tightness until upstream capacity is created to support both the high-end and commodity markets."

Scott Kearns, principal partner of Santa Fe Springs, Calif.-based ElastaPro Silicone Sheeting L.L.C., a middle market silicone consumer and processor, agreed that supply chain problems and price hikes from the major upstream suppliers "have been the key issues the silicone rubber industry has been dealing with again in 2021."

"While the silicon metal spike has finally eased, we are seeing some settling on pricing from most suppliers," Kearns told Rubber News. "That said, demand for silicone rubber in North America continues to outpace production from North American silicone rubber suppliers as these suppliers either struggle for critical raw materials or reallocate assets to products that yield better economics."

With Asia serving as the bellwether region for both LSR and HCR—more than half of the world's silicone usage now is in the Asia-Pacific space, with China consuming the most product, both in silicone and its metal monomer silicon—trends there tend to reach North America within a couple months.

In Asia, the average price of silicone was up more than 50 percent year-over-year this past November and more than 25 percent year-over-year from February 2020.

And these spikes will continue, experts say, until capital expansions are completed and more monomer capacity is created by the largest producers, including Dow, Wacker Chemie A.G., Momentive, Elkem and Shin-Etsu Chemical Co. Ltd.

The global silicone market became a $15 billion industry in 2020, according to IMARC Group, a consulting firm based in India with its U.S. headquarters in Sheridan, Wyo.

The company expects a combined annual growth rate of 7.7 percent from 2021 through 2026, driven in part by HCR and LSR use in the electric vehicle industry and increased use in medical and aerospace.

Similar to 2017-18, there is not one single thing that will affect the silicone market in 2022. Current market volatility has multiple culprits that will require multiple solutions.

For one, demand has not let up since 2017, according to silicone market experts—a boon to industries if demand can be met.

But amidst the "perfect storm" of today's supply line chaos and pricing challenges, experts say there are many reasons to be optimistic come 2022.

"The current supply situation is being driven by the market playing catch-up for nine months of a significant slowdown—all at the same time that silicone producers are struggling with personnel, equipment and critical ancillary products that are in short supply," Kearns said. "All of this together has created a perfect storm of constrained supply.

"This is not a single silicone producer issue, this is a global issue affecting all silicone suppliers as demand is up, costs are up and they are playing catch-up."

Given the expected sharp growth in construction, demand is expected to grow in the new year.

"Silicone is a popular selection for gaskets in commercial infrastructure," Sharp told Rubber News earlier in 2021, noting the Infrastructure Investment and Jobs Act "would quickly accelerate this demand."

Looking ahead, IMARC Group expects the global silicones market to exhibit moderate growth during the next five years, with market volume projected to reach 2.9 million metric tons by 2025.

The silicone industry could reach between $23 billion and $24 billion globally by 2025.

And with that, all is not gloom and doom, as there is potential for very strong growth in the silicone industry.

Kearns said the market will right itself—the question is when, and at what price point.

"What we are experiencing in 2021 will pass," he said.

Kearns added that current demand levels for silicone are "not significantly higher than they were before COVID-19 (other than demand for medical elastomers)."

One key for manufacturers heading into 2022 will be to maintain a multi-supplier philosophy, so that market downturns are not so acute; and to maintain overstock where appropriate, so that customer needs can be met.

Regardless of the issues negatively impacting the industry, silicone rubber remains a versatile elastomer that is specified by designers in most industrial and medical sectors—and often it is the only elastomer that will suffice in critical applications.

The uses of silicone in the medical space are expanding, and at a brisk pace, as the material is valued for its biocompatibility and inertness.

DuPont in November expanded its Liveo brand of health care-specific, high-performance materials with the introduction of a new line of one-piece silicone stoppers and tubings that will be commercially available for the biopharmaceutical industry in January 2022.

DuPont's pharma bottle closures are made from biomedical-grade silicone elastomers and are designed to seal threaded glass and plastic bottles in containers for critical fluid transfer, sample collections, storage and other applications.

The Liveo line also includes an extensive overmolded assembly portfolio for biopharma processing applications. They comprise a one-piece silicone seal with high-purity platinum silicone tubing.

Silicone tubing is available in durometers of 50, 65 and 80 and is supplied with the silicone closure assembly. The stoppers and tubings also can be used with critical vaccine or drug products.

In addition, a trio of companies announced in mid-October that they are working together to revolutionize medical and dental devices, according to FiteBac Dental, a manufacturer of antimicrobial compounds and additives in those industries.

FiteBac said it will look to the materials science expertise of Cerritos, Calif.-based R.D. Abbott Co. Inc. and its silicone product manufacturing subsidiary, NovationSi, to help in the endeavor.

Final products include such items as dental composites, dentures, crowns, bonding agents/adhesives, sealants, cements, endodontic sealers, resin systems, 3D-printed materials, implants, flexible silicone mouth guards, night guards, retainers and mouth rinses.

Among many other breakthroughs with silicone in the medical space, Cary, N.C.-based Parker Lord Corp. in December released a new silicone additive that allows for self-bonding, without the requirement of adhesives or primers.

Chemlok 3Stream can "significantly reduce the manufacturing cost for HCR-bonded parts," the company said in a press release.

The HCR additive can bond to clean metals, plastics (such as PBT), nylon and polycarbonate, but does not affect the mechanical properties of HCR.

Chemlok 3Stream is used in association with automotive and medical parts, in vibration controls and thermoplastic grips, respectively.

Industry experts say the uses for silicone in the medical field are limitless, and will continue to advance in 2022.

Unfortunately for those in the silicone industry—and for those in virtually every industry, for that matter—there is no end in sight to the logistical nightmares that have delayed the procurement of key raw materials and clogged both domestic and international ports.

"Things are not going to improve much in regards to supply in 2022 based on the current landscape," said Ace Products' Erick Sharp. "The biggest thing we are seeing at the close of 2021 is the reallocation of the assets used to produce the upstream feedstocks for silicone."

Sharp noted that there are more profitable products to use this capacity, and producers are electing to maximize these cost markets rather than add capacity.

"Many of the expansion announcements made during the market tightness of 2017–19 have not resulted in added upstream capacity," he said.

Philadelphia-based Stockwell Elastomerics Inc. experienced major increases in the cost of silicone in 2021—with the most dramatic increases occurring in the past two months.

And that will carry over into the new year, Chief Technical Officer William Stockwell said.

"We see the silicone supply chain as remaining tight throughout 2022," he said.

In particular, LSR remains in high demand, as many of the smaller players in the market like Stockwell Elastomerics continue to face allocations or excessive lead times—perhaps as bad as they were in 2018.

However, HCR (high consistency or gum-base silicone) used to produce closed-cell silicone rubber and solid silicone rubber appears to be "in ample supply," Stockwell said.

And the supply problem is global.

As China opens back up after the pandemic and demand increases in the world's largest economy once again, the North American markets have seen supply constraints.

Asia-Pacific is seeing the same situation, Sharp said.

In November 2020, prices spiked in Asia. There was a small reprieve in January 2021 before trending back up again.

The tightness in Asia was a combination of pandemic recovery, a major silicone monomer producer being down for an extended period and scheduled maintenance turnaround at other producers.

Specifically, a Dow/Wacker joint venture operation in China had some extended downtime, a factor in some of the constriction there.

In fact, all major producers have experienced delays on critical raw materials such as fumed silica, which in North America was hampered by a Wacker facility in Tennessee going offline for an extended period in mid-2021 to perform critical improvements.

Since Dow and Momentive are the only two producers that manufacture the monomer in North America (it is produced overwhelmingly in Asia), this makes the monomer supply on this continent reliant upon imports.

Silicone is used in a remarkable array of products, often selected for its wide temperature thresholds, chemical resistance, biocompatibility and low compression set, crucial for air-tight gaskets and seals in harsh environments, such as aerospace and construction.

The compound is used in food contact and medical procedures, as it is highly inert and stable.

Many of the key product sectors of silicone—including automotive, commercial and military aviation, medical, construction, household goods and consumables—are set for strong growth.

At about $25 million in annual sales, Stockwell Elastomerics is a small but growing company that has increased its facilities footprint by 30 percent over the last four years, and it has done so addressing a range of markets.

From the PPE push and ventilator programs that began in 2020 and continued into 2021, Stockwell Elastomerics has seen the silicone market transition toward aerospace and defense in 2021, specifically as LSR manufacturing spiked in security and electronics.

"Stockwell Elastomerics has experienced significant shifts in demand over the past two years," William Stockwell told Rubber News. "In 2020 we were challenged to keep up with six major PPE and ventilator programs that required a lot of silicone and production capacity. These programs were completed by year-end.

"In 2021, the aerospace and defense sector kept us busy along with security and electronics. The silicone supply chain issues have hampered our ability to be as responsive for our customers as we used to be."

In addition, e-mobility, data storage and renewable energy are expected to hike silicone demand in the coming years, though the electric vehicle market may be slow to take up the versatile material.

"Given silicone's weatherability and temperature flexibility, it is in a position to expand automotive usage considerably in EV technology since fuel and oil resistivity would no longer be of concern," Sharp said. "Due to the supply issue, silicone will likely not capitalize on these opportunities.

"Engineers are becoming reluctant to go with silicone due to the supply and price stability issues. Expect EPDM, TPV and TPE to take advantage of this void."

While some expect silicone price increases to continue, others say a plateau may be on the horizon, albeit at a higher price point than pre-2021.

Of the major suppliers, Wacker Chemie A.G. increased prices this past fall on its silicone products by an average of 30 percent across the board. The company said the increase was due to an increase in the cost of raw materials, especially as it relates to the metal silicon, as well as pandemic costs and rapidly increasing supply line inflation.

"Critical components in the supply chain have multiplied in cost," Wacker said in an October news release announcing the price hike.

The increase encompassed silicone fluids, silicone emulsions, silicone rubber, silicone resins, silanes, HDK pyrogenic silica, sealants and silane-terminated polymers. In 2020, Wacker Silicones generated about 50 percent of overall group sales.

Dow, the world's largest producer of silicone, also increased pricing in October by 10 percent.

Shin-Etsu also raised prices on global silicone products in October, a price hike that mirrored a March increase from the company.

The price increase of 10 to 20 percent—in some cases more than 20 percent—also was due to shipping and raw material cost increases, Shin-Etsu said in September.

"We continue to expect a tight market in 2022 and North American buyers of silicone rubber should expect a leveled off price point higher than the average pre-2021, as improved economics are critical to support North American production of silicone rubber," Kearns said.

North America is facing a pivotal time, he said, as domestic silicone producers consider "reinvestment economics" in adding capacity to silicone rubber production, at the same time that they have other potential uses for capital and feedstock that may present more lucrative margins than silicone rubber.

Moreover, China continues to invest heavily in basic silicone production and finishing, while U.S. producers are hedging against creating overcapacity.

Thus far, none of the capacity increases that were announced three and four years ago by major suppliers have come to fruition.

"The challenge is the Chinese are investing and apparently happy with their return on investment, possibly due to subsidy or lower actual costs, while North American fabricators are faced with the question of paying even higher prices to support domestic reinvestment," Kearns said.