"Similar to 2017-18, there isn't just one single thing affecting the market," Sharp said. "It is a combination of factors. Other than a short dip during the peak of the pandemic shutdown, demand of silicone has not let up since the 2017-18 era. During that crunch, there were a lot of announcements on expansions, but very few of those have been completed or even started yet. This means the market has very little buffer."
The "perfect storm" occurring in the silicone market today may be a combination of events, but unlike the unrest seen in 2017-18 a global pandemic has been added to the existing dearth in capacity and rising demand, according to Scott Kearns, principal partner at Santa Fe Springs, Calif.-based ElastaPro Silicone Sheeting L.L.C.
ElastaPro is a smaller company in terms of fabrication personnel count, but a medium- to larger-sized consumer and processor of silicone rubber.
"The current supply situation is being driven by the market playing catch-up for nine months of a significant slow down—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."
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.
Experts predict that demand for silicone will continue to grow over the next few years. Many of the key product sectors of silicone—including automotive, commercial and military aviation, medical, construction (which only will increase if the proposed $1.2 trillion infrastructure bill in the U.S. passes), household goods and consumables—are set for strong growth.
The only way to level the market, some say, is to increase capacity and streamline logistics, which also remain huge problems since, in many cases, capacity is waiting for freight space at oceanic ports.
At $25 million in revenue, Philadelphia, Pa.-based Stockwell Elastomerics Inc. is a small but growing company that has increased its facilities footprint by 30 percent in the last four years. In the last three months, Stockwell has added 10 percent to its work force despite a tight labor market.
And it is growing in revenue by 12 percent year-over-year—mostly in silicone rubber products, according to William Stockwell, chairman and chief technical officer.
"Liquid silicone is in very tight supply," Stockwell said. "Many of the smaller players in the market like Stockwell Elastomerics are facing allocations or excessive lead times—perhaps as bad as it was in 2018.
"I missed the signals on this one. One of our major suppliers offered cost decreases in the fourth quarter of 2020. Then by February, they were no longer accepting or acknowledging our orders."
Stockwell said all of the company's material suppliers have increased costs, some with notification, others without. Stockwell Elastomerics is being forced to pass on some of these cost increases to customers.
"We are at risk of failing to meet our commitments to some major customers on molding critical components for defense, medical and technology equipment applications," he said. "We are actively working to get an alternative supplier qualified on many of these applications."
A global supply problem
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, with customers being allocated and silicone prices skyrocketing.
Asia-Pacific is seeing the same situation, Sharp said.
"In November 2020, prices spiked quickly in Asia," he said. "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, Sharp said all the 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 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.
"Getting more domestic capacity for silicone monomer would be helpful in reducing the risk of volatility in North America," Sharp said. "Obviously we are seeing massive logistical issues across all markets and industries. Once again we have a market that is tapped on capacity and suddenly some of that capacity is delayed on the ocean or sitting at a producer waiting for a container."
Given the expected sharp growth in construction, demand is expected to grow in the second half of the year.
"Silicone is a popular selection for gaskets in commercial infrastructure," Sharp said. "The proposed infrastructure bill being discussed in government right now would quickly accelerate this demand."