Lianda stocks up to cover CPE needs as competitor pushes alternative source

TWINSBURG, Ohio—The supply situation for chlorinated polyethylene elastomers may get tight later this year because of ongoing issues in China.

Twinsburg-based Lianda Corp., the top U.S. provider for CPE used in the rubber industry, said despite the fact its main supplier had to shut down its prior operation before its replacement facility was built, it stocked up on enough inventory to meet customer needs.

A competitor that has been trying to make inroads in the U.S. market for the past several years questions whether Lianda has enough material to supply the market before the new plant in China is brought online and new materials can be qualified.

At the very least, customers need to be proactive and qualify a second source to ensure security of supply, according to Douglas Li, marketing manager for Verona, N.J.,-based Industech International Inc, which imports CPE from another Chinese chemical firm.

"They don't realize this is an urgent situation for them," said Li, noting that some major customers take six months or more to qualify new materials. "It's common sense. If they don't work quickly on additional sourcing they will pay the price for the industry."

Lianda has been in constant communication both with its CPE supplier and its customers, and said it is confident that it has enough supply on hand to meet requirements, said Chad Atzemis, Lianda's chief operating officer.

"With recent (COVID-related) shutdowns, we may actually have a little bit more of an insulation of inventory in the U.S., and we're working with our customers every day to make sure we understand their needs so that we can keep them fully supplied," he said. "And so far, we don't see any problems.

Relocation accelerated
Lianda is celebrating its 25th anniversary this year, and CPE was its first product, supplied by China's Weifang Yaxing Chemical Co. Ltd. Atzemis said Shawn Xu, one of Lianda's founders, was a polymer chemist and worked closely with the Chinese firm to develop the grades that were needed for the North American market.

"After some other CPE products left the market (including Dow), Yaxing stepped up and with Lianda's technical support helped reconfigure its product line and some of its manufacturing processes to be able to be the premier supplier to the rubber industry supplying grades that are not available anywhere else."

Lianda remains the exclusive distributor in North America for Yaxing's Welpren-brand CPE products.

For the rubber industry, wire and cable insulation and jackets, along with high performance hose and tubing, are by far the largest volume users of CPE elastomers, although CPE also finds applications in sponge, gaskets and molded goods.

Chlorinated polyethylene also is used in thermoplastic applications, including wire and cable jackets, rigid foam, molded goods, sheet and films, fabric coatings and adhesive seals. And CPE has a third major use, as an impact modifier for rigid vinyl products such as vinyl siding, fence, pipe and window profiles.

Atzemis said there are roughly 20 different grades of CPE used that vary in properties such as chlorine content, viscosity, heat of fusion and other specialty specifications.

"Globally, (thermoplastics) may be actually a higher volume, but for the North American market the rubber grades tend to be the more difficult to manufacture, more difficult to find grades," he said.

And by holding the position as the No. 1 supplier of these CPE materials to North America, Lianda needed to make sure it was in a position to meet customer needs once news came down that Yaxing would have to move its production facility much earlier than normal. There had been a three- to five-year plan in place, Atzemis said, for the Chinese chemical company to relocate its factory outside the city of Weifang because of many factors. That included the China Blue Sky Initiative, where the government was trying to clean up cities from a pollution and environmental standpoint.

Yaxing had expanded and relocated over the years, so Lianda was well-experienced in dealing with such supply changes from its CPE supplier. But last year the timeline changed drastically, Atzemis said, because there had been multiple chemical plant explosions in China during 2018-19, none of which involved Yaxing. Regional authorities for the city and Shandong Province dictated that the Yaxing facility had to close last Oct. 31.

"They were given roughly 60 days to shut down," he said. "The good news is at that time, Lianda jumped into action, did a survey of all their major customer volume-wise, and talked with leaders of Yaxing, the local and regional authorities, and the trade authorities in China. We basically bought out the 60 days of production and brought in about 1 1/2 years of inventory."

Since Nov. 1, Lianda has been working off that inventory at its U.S. distribution locations. Atzemis said Lianda wanted that much inventory to give Yaxing time to rebuild its facility at a different location, do the scale-up and relaunch, and get required customer qualifications of material from the new site.

The new plant is in the same region, located in the same province about 45 kilometers outside the city in a fully improved industrial park where the utilities already were run to the plot, according to Atzemis. Plans are to have capacity to produce 150,000 metric tons a year for CPE, with 50,000 tons available when the first phase is completed later this year and the rest from the second and third phases, projected for early 2021.

He said construction is on schedule, having visited the site a couple of times, but now has been receiving photo updates because of travel restrictions enacted due to the coronavirus pandemic.

An alternative awaits
Industech International has been in business since 1993, with one of the major lines it imports and distributes being ultrahigh molecular weight polyethylene resin. Because of its work with polyethylene raw material, it started looking into the CPE industry. After Dow Chemical shut down its U.S. CPE operations, it first started work with a former Dow joint venture company in China.

But Li said it found the supplier's product wasn't a good fit for the wire and cable industry, a market Industech wanted to focus on. That led it to start a relationship in 2015 with China's Weifang Polygrand Chemical Ltd., a relatively new player in the CPE market. Industech imports the firm's Topren-brand materials and works with RHD Polymer & Chemical to distribute it in the U.S.

Since word came out about the Yaxing facility being shut down, Li and Industech have been trying to alert users of CPE that this could lead to a shortage of material in the market, and that it was a viable alternative to step in to pick up the slack. He said the firm's research into the amount of CPE imported into the U.S. through early this year gave it an indication of how much material Lianda had brought in, and that its analysis showed the possibility its competitor may run short of the elastomer, depending on when the new Yaxing facility opens.

Its message included that Polygrand's facility already was located outside the heavily polluted industrial zone and is, in fact, located near where the new Yaxing plant is being constructed. Li said Polygrand has 40,000 metric tons of CPE capacity and uses the acid process, which doesn't produce high levels of wastewater like the water phase process does.

"Due to Industech's partnership agreement with our supplier, we are positioned to not only supply our existing customers' needs, but also take on new business and new customers," Li said.

Users of CPE also need to work more quickly to qualify new materials should a shortage come into play, he said. Customers such as those in wire and cable, though, are slow to qualify additional suppliers because the investment for qualifications can run so high.

Li spoke of one compounding customer that had done some pre-work on qualification for Polygrand, but its customer didn't want to switch because of the long and costly process.

Li acknowledged it has been tough for Polygrand to get established in the U.S. to this point, but they have patience. He said the supplier has a good customer base worldwide, but could have an expansion that would be reserved for U.S. consumption if needed.

European customers for CPE elastomers tend to be smaller, he added, while in the U.S. customers tend to be bigger and need larger quantities, making the market attractive.

Industech does have a number of leads in the U.S., and claims it can give better service while matching product quality. Polygrand's equipment also is newer and can provide better economics because one reactor will product 20,000 metric tons, he said.

The CPE supplier added, however, that Polygrand and Industech won't look to compete in the lower-price commodity end of the market, instead concentrating on the higher-end of the CPE supply chain.

And he said the two partners will be patient. "This year, everybody is focused on coronavirus," Li said. "This is the time they need to do something, because shipping could be delayed or a manufacturer could be delayed. We are trying for five years and we can wait another five years. We try to find the best customers who see the value we have."

Expecting smooth transition
Meanwhile, Lianda continues to communicate daily with its customers to see what the implications are of the business slowdown brought on by the COVID-19 pandemic. Atzemis said it varies by customers and applications, with some shut down, others slowed down and some bouncing back quickly.

"We want to make sure we don't over-commit, because we do have customers with pent-up demand, and others where demand is a little softer," he said.

So the CPE distributor is dealing with the situation on a customer product level, rather than making broad statements about availability.

Lianda also bought up as much CPE material as it could because it wanted an extra buffer in case requalifications take longer than expected. Atzemis said the firm doesn't expect much difficulty because the incoming feedstocks won't change, the same process will be maintained, as will much of the personnel.

"Yaxing has been a fantastic partner and part of the family for the last 25 years," he said. "They've worked with us to outline which products need to be scaled up first and which processes need to be brought online first.

"They've laid out three phases for the CPE plants and a couple other phases for some of the other products they make. That first CPE plant that's coming online will be designed to meet the needs of the North American market based on criticality."

China is the only source for these CPE materials, and Lianda was instrumental in getting CPE exempted from the tariffs list, as CEO Lee Mao went to Washington and lobbied to get it removed from the 301 List 3 tariffs because there were no domestic suppliers, according to Atzemis.

He said customers typically have dual sources for most CPE materials, but certain grades don't really have any viable alternatives.

Thus far, customer feedback has been good on the transition plan for Yaxing's production facilities. It helped, Atzemis said, that Lianda met with all customers, understood their contingency plans and needs, and the timing of their requalifications where needed.

As for potential allocations, he said Lianda budgeted by product and by customers. "What it means is we have a limit to what new business we can bring on during the transition period because we don't want to jeopardize the existing business," Atzemis said. "So we guaranteed certain volumes per customer based on historical usage, plus forecast plus expectation. We budgeted for existing customers, and there's only a certain amount of material for non-budgeted customers."

He did say there were some customers who made requests for certain grades and others who hadn't been recent customers looking for supply, and Lianda was able to accommodate some of those needs.

"We're committed to make sure we smooth out as many of the bumps in the road as possible for customers," Atzemis said. "We're very blessed to have a great customer base that communicates often and early with us."