SR market still struggling with overcapacity

SEATTLE—The global synthetic rubber industry remains a market dominated by Asia-Pacific, both in terms of supply and demand, and also is a sector where consolidation continues and overcapacity remains an issue, albeit a bit less in 2018 than in recent years.

Those were some of the key takeaways in the Global Synthetic Rubber Overview delivered by Roxanna Bauza-Petrovic, general director of programs for the International Institute of Synthetic Rubber Producers, during the group's Annual General Meeting, held May 13-16 in Seattle.

Asia-Pacific controls 56 percent of overall SR capacity worldwide, with China accounting for 27 percent and the rest of Asia 29 percent. "The rest of Asia overtook China at the end of 2016 because the majority of new projects and expansions came in this region," Bauza-Petrovic said. "This trend will continue, and we also expect to see some growth in China."

Tire elastomers make up 60 percent of SR capacity, she said, and also have been the main contributor to the overcapacity situation the IISRP has chronicled for the past several years.

"Solution SBR and polybutadiene were growing faster than all elastomers in the past five to seven years, and this is driven by the demand of high performance tires," Bauza-Petrovic said, adding there also has been some growth for EPDM, butyl rubber and a few other SR types.

As for the overcapacity situation, utilization rates overall have improved during the past few years. For the total market, she said operating rates have improved from 71 percent in 2015 to 73 percent in 2017 then 74 percent in 2018.

Breaking out tire elastomers, she reported utilization climbed from just 63 percent in 2015 to 70 percent in 2017 and 71 percent in 2018. Conversely, non-tire elastomers had operating rates of 81 percent in 2015, dipped to 76 percent two years later, before rebounding some last year to 78 percent.

Fewer companies are accounting for the bulk of global SR production capacity, according to the data presented by Bauza-Petrovic. In 2014 a total of 25 companies controlled 80 percent of capacity. A year later, 23 companies accounted for that same 80 percent, and last year there were just 21 SR producers needed to make up that same percentage.

"What has happened here is a combination of two things," she said "The big players are still growing, they are expanding their facilities and we have seen a number of joint ventures formed. But we also have seen some closures."

The IISRP puts current total global capacity at 20.4 million metric tons. It ranked Arlanxeo—now owned 100 percent by Saudi Aramco—as the top overall player, with a bit more than 2 million tons of capacity, followed by Sinopec at 1.5 million. The top five is rounded out by Petrochina at 1.29 million tons, Kumho Petrochemical at 1.19 million tons and ExxonMobil at 980,000 tons, according to IISRP data.

Regarding China, Bauza-Petrovic said the nation has launched the China Manufacturing Initiative 2025, an industrial development plan focused on 10 key sectors. She said it has brought some controversy, first because of tensions between the U.S. and China, but also because of potential breaches of World Trade Organization Rules in terms of intellectual property and trade secrets.

"We will continue to follow up on this initiative and how it will impact the synthetic rubber industry," she said.

The IISRP expects less volatility this year in terms of pricing and raw material supply. Bauza-Petrovic said oil prices have impacted feedstock prices and profit margins for SR producers over the years, but the institute expects steady oil prices this year.

Butadiene has been one of the most volatile chemicals in the market, but that doesn't look to be the case for 2019. "We are expecting to see a stable supply in the three (global) regions," she said. "We will spend some time on maintenance, but we're still expecting to see stability in terms of supply and prices."

The ample supply and continued low pricing of natural rubber will continue to put pressure on SR producers. There is more SR used in passenger car tires, and more NR in larger tires such as truck, aviation and machinery equipment tires.

"We believe performance requirements will dictate the demand," Bauza-Petrovic said. "We believe synthetic rubber can offer to the market controlled molecules, which is important for high performance applications. Natural rubber still has a lot of unknown components. That's a disadvantage for NR."

Looking at some end markets, the tire industry showed only marginal growth for the replacement sector, with original equipment tire demand down 2 percent. The automotive industry remains the main driver for synthetic rubber, and the vehicle sector is starting on a long-term transformation to alternatives such as connected, electrified and shared mobility.

"The pace of investment in future mobility technology is accelerating, with the U.S. leading the list followed by China," she said. "Future mobility seems to be coming earlier and we need to be prepared."

Following is a closer look at what the IISRP sees for each of the main SR materials.

Polybutadiene (BR)

There has been considerable investment for new polybutadiene capacity over the past six to seven years, according to Bauza-Petrovic. The overcapacity situation for BR has improved some, moving from 71 percent operating rate in 2017 up to 75 percent in 2018.

"We don't expect to see new projects in the short term, so we're going to see more balance for this market," she said.

Asia-Pacific is dominant in the polybutadiene market, controlling 63 percent of supply and having 60 percent of demand. The Europe, Middle East, Africa region has 23 percent of supply and 22 percent of demand, while the Americas comes in at 15 percent of supply and 18 percent of demand, the IISRP reported.

Emulsion SBR

There hasn't been much investment in E-SBR capacity in recent years, and a couple facilities have been idled. Still operating rates have remained depressed, dropping from 70 percent in 2017 to 68 percent last year. Bauza-Petrovic added that demand declined last year in China.

Asia-Pacific also reigns here, with 63 percent of supply and 64 percent of demand. That compares to supply and demand figures of 20 and 16 percent, respectively, for EMEA and 17 and 20 percent in the Americas.

Solution SBR

This is a material that has seen a lot of expansion in the past five years, possibly coming on too fast, the IISRP official said. There has been improved demand in all regions, but overcapacity remains in Asia-Pacific and the sector as a whole has an operating rate of 68 percent.

"Performance in terms of supply and demand is improving year by year," Bauza-Petrovic said. "Operating rates are still low but they are improving. We believe this is because a lot of new capacity came on stream, so we can see how the new facilities are ramping up their production. We are expecting to see (utilization rates) recover year by year."

China saw a decline in demand for S-SBR in 2018, and imports still make up a majority of supply there. Globally, Asia-Pacific sports 46 percent of supply and 41 percent of demand. EMEA has supply/demand percentages of 27 and 33 percent, with the Americas at 27 and 26 percent.

EPDM

There were big investments in new capacity for EPDM in 2015, followed by a closure in 2016, then more significant additions in 2017-18, the IISRP said.

"Asia-Pacific was a net importer of EPDM products, so with this new capacity coming on stream in this region, the trading picture has been changing," Bauza-Petrovic said. "You will see a lot more self-sufficiency in the Asia-Pacific region, where you still have to see product come in from North America and Europe, but not in the same way it used to be."

She said there has been improved demand in all regions, with capacity utilization rising from 72 to 75 percent last year. Asia-Pacific has 40 percent of supply but 44 percent of demand, followed by the Americas with 38 percent of supply and 29 percent of demand, and EMEA with supply/demand of 22 and 28 percent, respectively.

Demand did grow in China last year, and imports still supply the majority of EPDM there.

Nitrile rubber (NBR)

There has been modest investment in NBR, leading to a more balanced market as demand has improved in all regions. The sector had a strong operating rate of 86 percent in 2018, up from 78 percent the prior year, according to IISRP data.

China saw demand and production increase for nitrile rubber, with imports dropping after China imposed antidumping duties on imports from South Korea and Japan.

Asia-Pacific controls two-thirds of global supply for NBR, while accounting for 57 percent of demand. EMEA basically is self-sufficient with supply and demand both checking in at 28 percent, while the Americas accounts for just 5 percent of supply but 15 percent of demand.

Styrenic block copolymers

One elastomer that has been growing year by year is styrenic block copolymers, and future capacity additions are expected in Asia-Pacific, Europe and the Americas, Bauza-Petrovic said, though she wouldn't be surprised to see delays in some of the projects. The supply/demand balance also is improving, going from an 80 to 83 percent operating rate in 2018.

China is mostly self-sufficient with the majority of supply consumed by the local market. Asia-Pacific overall dominates for this elastomer, with 73 percent of supply, compared with just 15 percent in EMEA and Americas. The IISRP official said with some of the projects ongoing, she wouldn't be surprised to see Asia-Pacific with 80 percent of supply in coming years.

On the demand side, Asia-Pacific is at 55 percent, followed by EMEA at 26 percent and the Americas at about 20 percent.

Polyisoprene and butyl

For polyisoprene, there have been some investments, but also some capacity taken off the market, leading to some improvement in operating rates, Bauza-Petrovic said. The IISRP doesn't expect any new capacity additions in the short term.

Butyl had some investment in 2013, followed by three years of market balance, and then significant capacity expansions in 2017 and 2018. She said there has been some demand growth for this rubber driven by olefin applications, with most of the uptick likely coming from the Asia-Pacific region.