CLEVELAND—In the 70 years that silicone literally has been a part of the fabric of society, perhaps no era has been more tumultuous for the elastomer's market than the last four years.
In 2017, the silicone market was strong, from pricing to capacity to demand. That all changed in 2018, when the market witnessed supply shock and silicone hit high water marks, with demand outrunning supply and both upstream producers and downstream customers seeing massive price hikes.
And in 2019, the market began to right itself once again—just in time for the coronavirus pandemic to turn everything on its head in 2020.
"It has certainly been an eventful few years," said Kent Furst, manager of polymers and materials at The Freedonia Group Inc., a market forecasting firm in Northeast Ohio. "When 2020 arrived, as the kids say, 'Just gesture broadly at everything.' "
Furst, who has been cited in the New York Times, Wall Street Journal, CNBC and many trade publications, appeared virtually from his home Nov. 10 to offer his expertise on "Trends and Forecasts for the Global Silicone Market," part of the first day of the virtual International Silicone Conference, Nov. 10-12.
"Part of the issue is the changing conventional wisdom on the pandemic itself," Furst said.
Assessing the global economy, GDP growth in most parts of the world is predicted to decrease by between 1 and 1.5 percent—"a considerable drop that will have lasting effects," Furst noted.
While China is doing a little better at this point, India is doing a little worse than those baseline predictions.
This is not the case for the U.S., as GDP is predicted to cascade by between 6 and 7 percent, more than The Freedonia Group's earlier prediction of a 2-percent decline, based on statistics from Oxford Economics Co.
And while retail sales have been a bit better, boosted by the first financial stimulus, U.S. manufacturing has seen an 8-percent decline in 2020, while automotive (especially light vehicle sales) is predicted to be down by as much as 20 percent this year.
Construction appears to be holding up very well, Furst said.
"People who are stuck at home are upgrading their living spaces," he said. "This is money that would otherwise be spent on vacations and recreational opportunities—things that are no longer options because of the pandemic.
"What is more worrisome is that the recovery index is now in decline again as COVID-19 cases hit record highs in recent weeks."
So how does all this affect the global silicone industry and supply chain, an elastomer space that has seen steady growth over the past two decades?
When demand fell during the Great Recession of 2008-09, and during a period in 2016 when China exhibited weak demand for silicone products, the industry rebounded strongly, Furst said, adding he expects it to do so again following the pandemic.
In 2008, there was a decline in the global market of about 5.5 percent in silicone industry sales, while the pandemic is expected to push that downturn to more than 8 percent, Furst said.
Relatively speaking, the silicone market is expected to be hit harder than the overall GDP decline of 6 to 7 percent, however it also is expected to rebound more quickly.
"A strong rebound in the coming years is expected," Furst said. "It is expected that we will regain the ground we lost in 2020 by 2021, and the industry should rise above the high water marks in 2017-18 by 2022 or 2023."
To review the chaos of 2020 through the lens of the silicone market shows a first quarter that saw weak pricing carried over from 2019, especially for commodities. The second quarter witnessed the most precipitous declines at between 15 and 25 percent as the full force of the pandemic took hold.
Automotive, personal care and construction all fell of the table, while medical, with its necessary PPE and ventilator projects, saw high demand for silicone products.
The third quarter saw some recovery in construction and automotive, as well as pricing somewhat firming back up with demand.
And the fourth quarter remains to be seen.
"Initially, it looks like recovery is continuing, though lock downs in Europe are still contributing to a slower recovery," Furst said.
Looking ahead, by market
As uncertainty caused by the pandemic remains, silicone products related to transportation (auto, aerospace, mining) and personal care will continue to show the greatest declines, while medical is predicted to continue as the strongest market.
Construction is expected to pick back up and already is showing signs of doing so, while silicone in electronics is expected to "fair a bit better than average," Furst said.
"Statistics are no substitute for judgment," Furst said. "Numbers are important, but the story behind the numbers is more important."
In construction, demand "is holding up better than most markets in 2020," the economist said. "New construction is picking up. The bad news is in commercial construction, which will lag considerably as businesses rethink their footprints in light of the pandemic."
Double-digit declines are expected in transportation for the silicone industry (on top of a weak 2018 and 2019), however Furst said there is good long-term potential here, especially for liquid silicone rubber specialties—a market that is still heavily focused on the U.S. and Europe.
"LSR is a premium material," he said. "It will do better than silicones overall. There will be a decline, but it should not be significant. It will depend on the markets and their applications—medical is doing very well, especially for LSR. But more conventional applications, like generic automotive electronic connectors, are likely to decline."
In personal care, people continue to work remotely with few social gatherings. As such, silicones in this market show a sluggish long term forecast due to material competition and market maturity, as well as regulatory pressures, Furst said.
And as has been the case for many raw material markets, medical and health care continue to flourish.
"No surprise here," Furst said. "There has been a desperate need for PPE, and medical devices like ventilators drove demand. Ongoing safety measures implemented should continue to benefit this market."
In other markets for silicone products, oil and gas remains "way down" as drilling activity has declined. Paper and textiles remain "relatively weak," Furst noted, and machinery has been hurt by a poor industrial capital market.
Foam stabilizers used in furniture, like polyurethane, are seeing an upswing that has been aided by an improving construction sector.
Pricing, Furst said, is perhaps the most difficult variable to predict, with the exception of the political effects on the silicone industry.
Currently pricing is down, along with demand.
"It's very hard to forecast pricing," Furst said. "But I do expect pricing to firm up over the next year, and then incrementally after that. Pricing is relatively low for now ... and as long as that is the case, profitability will suffer."
The silver lining for the silicone industry is that it has shown historical resilience, rebounding within a couple years following the Great Recession. It is expected to do so again following the pandemic.
"By 2022 or 2023 we should be able to make up the ground," Furst said. "I expect the recovery will be about the same (as the Great Recession)."