CUYAHOGA FALLS, Ohio—While the pandemic did make pricing for key raw materials volatile during 2020, it wasn't necessarily as bad as some may have expected.
If you look back, in fact, 2020 wasn't even the most volatile for pricing for feedstocks used in synthetic rubber over the last decade, according to Bill Hyde, IHS Markit executive director for olefins and elastomers.
"Taking the ratio of the current price versus the average over the last 11 years, prices did go low for some things in 2020, but in other things not as much. It's an interesting dynamic," Hyde said in a talk during the Rubber in Automotive Conference, hosted virtually June 1-3 by Rubber & Plastics News.
He said the automotive market is facing some significant headwinds. Because of what transpired in 2020, people tend to forget that light vehicle sales had been dropping globally starting in 2017, well before the COVID-19 pandemic hit.
With light vehicle production down about 16 percent last year, Hyde quipped that the least risky prediction he has to make is that auto sales will rise in 2021. But by how much and where are the real questions.
In some key markets, like China, the recovery is almost complete, "if you listen to official data," he said. But other regions such as Western Europe, which is still locked down, will see a slower recover, with the U.S. expected to be somewhere in the middle.
Hyde added that auto forecasts must take on some additional factors above and beyond the uneven fundamentals, including the chip shortage caused by the surging demand for semiconductors along with the crippling winter storm in the Gulf Coast region.
"Almost from a natural disaster perspective, that winter storm caused more damage to the petrochemical market than any hurricane we've tracked in the history of the industry," he said. "It essentially shut down the state of Texas."
In some cases, it took 1 1/2 months to get assets restarted and even longer to start ramping up to previous production rates.
Looking forward, IHS Markit projects light vehicle production won't get back to 2019 levels until 2023-24, and it will take until 2025 to reach 2017 peak levels.
Again, China will recover faster, hitting 2017 sales by 2024, with Western Europe taking until 2028 and North America until 2030, according to Hyde.
"We're looking at an extended period of recovery, and relatively slow growth in light vehicle production," he said. That in turn will impact such synthetic rubber markets as SBR and polybutadiene, and to some extent butyl and EPDM.
Outlook for feedstocks
For most of the key petrochemical feedstocks used in synthetic rubber, the auto industry and SR aren't the big drivers for demand. Only for butadiene is the mobility market the key driver, while other sectors are more important for ethylene, propylene and styrene.
Looking at ethylene, Hyde said the market has seen several years where global demand growth was more than capacity additions, but starting last year and for the next couple of years, that won't be the case.
"And that puts pressure on operating rates. Pushes them down," he said. "They were around 90 percent year, but for next year, ethylene operating rates will be in the low 80-percent range."
That begs the question on who will have to cut back. In the ethylene market, Hyde said it's all about the incremental cost of production, along with any costs from tariffs "and other government interference in the free flow of the markets." So if a producer can make ethylene and transport it to another destination at a lower cost than domestic production there, than the domestic supplier will have to cut back.