COVER STORY
BIG WHEEL A tread is being installed on a Goodyear two-piece tire, which uses air pressure locks, not bonding agents, to adhere the tread to the tire.
ELASTOMERS BOUNCE BACK Commodity synthetic rubber makers have been stretching profits because of improved sales, but are now struggling with high raw material prices ALEXANDER H. TULLO, C&EN NORTHEAST NEWS BUREAU
T
HE SYNTHETIC RUBBER BUSINESS HIT THE SKIDS
a few years ago. In 2001 and 2002, volumes were down, raw material costs were high, and many manufacturers—of both rubber and tires—were losing money. Since that time, the petrochemical industry has recovered, and along with it the bulk synthetic rubber business. Products such as styrene-butadiene rubber (SBR),
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porybutadiene rubber (BR), and ethylenepropylene-diene-terpolymer (EPDM) have recovered nicely, and the industry is again profitable. This year, though, the industry lost some momentum. Sales have been steady but aren't growing significantly. Feedstock prices, already high last year, have climbed even further in 2005. And Hurricane Rita has had a significant impact on the synthetic rubber industry, which has its capacity concentrated in the region hardest hit by last month's storm. C&EN
/ OCTOBER
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COVER STORY The synthetic rubber industry hit bot tom in 2001, when global rubber con sumption declined by 4.5% to 10.2 million metric tons, according to the Wembley, England-based International Rubber Study Group (IRSG). That decrease marked a low point in the industry, particularly in North America, which had a lot of excess capacity at the time. One U.S. producer, Ameripol Synpol, even went bankrupt in 2002 and was forced to idle its Odessa, Texas, plant. Since 2001, synthetic rubber consump tion around the world has grown each year. And in 2004, it grew by 3.7%, hitting 11.8 million metric tons, according to IRSG. In North America, synthetic rub ber demand increased by 2.8% in 2004, IRSG says, driven by improvement in the market for tires, the largest end use for products such as SBR and BR. According to the Rubber Manufacturers Association (RMA), U.S. tire shipments increased by 2.5% last year, reaching 318 million units. In an August forecast, it projected a 2.2% increase in 2005 shipments. In 2006, it expects shipments to increase by more than 2%. John Vincent, president ofFirestone Poly mers, which makes SBR and BR for Bridgestone-Firestone's U.S. tire business, agrees with RMAs assessment. He says the market conditions seen in 2004 and 2005 are a far cry from the sluggishness of 2001 and 2002. "Demand has been strong and will continue to be strong through 2006," he says. But Darren E. Cooper, senior statisti cian at IRSG, says escalating feedstock costs are taking their toll on synthetic rub-
Globally, synthetic rubber volumes were nearly flat in the first half of 2005, Cooper Synthetic rubber volumes have says. "Heightened costs, it would seem, have recovered from their dip in 2001 taken their toll." He expects about 1 to 2% growth in synthetic rubber consumption Millions of metric tons next year. I Natural • Synthetic Synthetic rubber consumption in North America, however, has been stronger, rising by an estimated 4.5% during the first six months of the year after slipping by about 1% last year, Cooper says. When synthetic rubber prices are high, 2000 2001 2002 2003 2004 products such as SBR and BR can become NOTE: Global consumption of natural and synthetic rubber. SOURCE: International Rubber Study Group vulnerable to substitution by natural rubber. According to IRSG, the ratio of natural to ber markets. Feedstocks such as butadiene synthetic rubber prices decreasedfrom1.08 and styrene compose about 45% of the in the first quarter of last year to 0.84 in the cost of making synthetic rubber, he notes. second quarter of this year. "Synthetic rub West Texas Intermediate crude oil prices, ber prices have been so strong that there was a large driver for the price of feedstocks some impact on natural rubber consump used in synthetic rubber, have climbed tion," Cooper says. from $42 per barrel at the beginning of As a result, natural rubber demand grew the year to more than $65 in early October. by about 7% in thefirsthalf of 2005, Coo U.S. butadiene prices, which had risen by per says. Butrisingnatural rubber prices40% in 2004, increased by another 25% caused by a limited increase in production during the first nine months of this year, out of Malaysia and Thailand—may slow Cooper says. growth in natural rubber demand by the end of the year. He thus expects full-year THESE FEEDSTOCK costs have helped push growth to be about 6%. up synthetic rubber prices. BR prices rose EPDM Producers have also noted a by 40% last year, and SBR prices increased change in business conditions over the past by about 50%, Cooper says. In turn, tire two years. "Things have turned up pretty producers have been raising their own significantly from a prolonged trough that prices to pass these costs along to their cus we experienced," says David Kyle, technical tomers. "The world's major tire producers service and development manager for Dow have been unable to weather the battering Specialty Elastomers. they have received through rising costs Unlike BR and SBR, which are primarily and have, therefore, also lifted product used in tires, EPDM is driven by nontire prices," he says. applications such as automotive weather
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stripping, commercial roofing materials, wiring, plastics impact modification, and tubing. Volumes in these segments have increased with the improving economy. "There was some slowdown in demand around 2001 and 2002, and then overall industry demand growth improved around the end of 2003 and in 2004," according to William Zarkalis, business director for Dow Specialty Elastomers. "In 2005, we got significant growth. On average, we expect 3 to 4% growth in the EPDM market." Steven Tranguch, global business director of Chemtura's Royalene EPDM business, says plant operating rates in EPDM have climbed from 70 to 75% in 2002 to 85 to 90% this year. Tranguch sees a 4% annual growth rate, with the North American market growing at a 2 to 3% clip. Certain markets are driving WIND DAMAGE Firestone Polymer's Orange, Texas, plant just after Hurricane demand. For example, he says EPDM sales Rita made landfall. Despite being hard hit, the plant remains structurally sound. into commercial construction increased by 18% last year, though growth in this seg- ating income, meanwhile, climbed 47.3%, like butyl rubber as well as commodities ment has so far been flat in 2005. such as BR, posted flat sales in 2004 versus to $177 million. International Specialty Products (ISP), 2003, while earnings before taxes during SYNTHETIC RUBBER producers were able which purchased the bankrupt Ameripol the period rose 8% to $142 million. Durto raise prices more than their raw material Synpol business injury 2003, also improved. ing the second quarter of 2005, Lanxess' costs have increased in 2004, IRSG's Coo- The company generated a loss of $3.3 mil- rubber sales increased by 17% to $446 milper says. As a result, their profit margins, lion in the second half of 2003 on $25.7 mil- lion versus the year-ago period, as earnings notwithstanding fixed costs such as pay- lion in sales. In 2004, the business earned increased 43% to $85 million. rolls, have increased. However, raw material $7.4 million on $170 million in sales. Nevertheless, Lanxess seeks to improve costs, he says, are again taking a bite out of In a vote of confidence for the business, the unit and is planning a restructuring fomargins in 2005. ISP announced in March that it was nearly cused largely on a nitrile butadiene rubber The financial performance at synthet- doubling capacity for emulsion SBR at its plant in France. Lanxess isn't the only company losing ic rubber companies bears out Cooper's Port Neches, Texas, plant to 340,000 metpatience with synthetic rubber. DSM is observations. Sales at Goodyear Tire & ric tons annually within two years. Rubber's chemical business increased by Lanxess, which has aperformance chemi- selling its SBR business, consisting of a 25.5% in 2004, hitting $1.5 billion. Oper- cal segment that includes specialty products plant in Baton Rouge, La., to Lion Chemi-
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COVER STORY cal Capital, which purchased PolyOne's extensive damage to their homes. Those rubber compounding business in 2004. who evacuated couldn't return to the area DSM says it is focusing on biosciences and for days. Firestone is providing food and performance materials and that the SBR housingforits employees at its plant sites. It business is no longer strategic. In 2004, also took out ads on local radio stations and the company shuttered EPDM capacity in a regional edition of USA Today to get the word out to employees that their jobs were Addis, La., andJapan. Hurricane Rita, which along with Hur- waitingforthem. Some 90% of the employricane Katrina devastated the refining and ees were contacted as of the first week of petrochemical industries in September and October, and by that time about two-thirds October, had a particularly strong impact on of them had returned to work.
commence shipments out of its warehouses by Sept. 30. ISP declared force majeure for SBR because its Port Neches plant was taken down in preparation for Hurricane Rita. Goodyear was able to resume synthetic rubber production at its Houston SBR and Bayport rubber chemical facilities after the hurricane. But its Beaumont, Texas, unit, where it makes BR, SBR, and isoprene, wasn't able to resume operations until Sept. 30. Because of the reduction in raw material supplies, the firm had to reduce production temporarily at its North American tire plants by 30%. Reduced availability of synthetic rubber and carbon black prompted Cooper Tires to cut back production at its Texarkana, Ark., Also slowing the return to normal and Tupelo, Miss., plants. The company says the synthetic rubber industry. The TexasLouisiana border area on the Gulf Coast, operations at Firestone has been power production will be reduced by 30,000 tires which was in the direct path of the storm, outages and a shortage of the nitrogen per day until raw material supplies return to is home to nearly all of the BR and SBR needed to flush out plant equipment be- normal. "Cooper buyers are scouring the market for alternative sources of materials fore restarting. plants in the U.S. Only one out offiveSBR plants in Texas Vincent says Firestone is also fortunate from suppliers not affected by the recent and Louisiana—the DSM plant in Baton that it had built up its inventory because of storms," the company said in a statement Rouge—avoided a shutdown because of the a recent maintenance turnaround at Lake late last month. storm. The storm also knocked out three of Charles and a planned turnaround at its Firestone's Vincent says that even after four U.S. BR plants. Most of the affected Orange unit. By Oct. 3, the company had all the production comes back onstream, producers have been down for weeks. The been shipping rubber to its tire operations the hurricane will have an impact on the supply disruptions have caused tire produc- out of both sites. market for the rest of the year as tire proers to curtail some of their production beNevertheless, the company has had to ducers scramble for raw material supplies. cause of raw material shortages. adjust tire production because of the raw "The market will be pretty snug through Firestone Polymers shut down its SBR material shortfall, shifting production to the fourth quarter," he says. Moreover, he plant in Lake diaries, La., and its BR plant truck tires, for which it has the strongest adds, raw materials, particularly butadiene, in Orange, Texas, on Sept. 23, a day before demand. It ratcheted down production in will likely continue their upward price trend for the remainder of 2005. other products. Hurricane Rita made landfall. Tranguch is also worried about the effects The plants managed to escape major damage. Aside from some impact to the FIRESTONE WAS not alone. Lanxess idled the raw material spike will have on the marcooling towers at both plants, the damage its Orange, Texas, site, where it makes BR, ketplace. "The hurricane is causing all of our was "not catastrophic" and was contained EPDM, and hydrogenated nitrile butadiene feedstock prices to go up," he says, noting to items like sheet metal walls and roofs, rubber. Like Firestone, it is offering assis- that after Hurricane Rita, Chemtura was Firestone's Vincent says. Moreover, among tance to its employees who have been scat- forced to pay an extra $10,000 to $15,000 to the employees whom Firestone was able to tered by the storm. The company says the receive its normal natural gas requirements contact, no major injuries were reported. site sustained limited structural damage and at its EPDM plant. Otherwise, it would "Considering we took a direct hit, we have flooding. But the site has been down since only have gotten a 70% allocation. He says been very fortunate," he says. the storm, and the company declared force profitability will depend on the "ability to Many employees, however, did suffer majeure in BR. The company was able to keep up with the additional costs everyone has to pay and whether you can pass those through to the final customers. Going Beyond Commitment, However, Tranguch says the rebuilding We Deliver SUVEN of the Gulf Coast region will have a positive impact on EPDM demand. The construcLife Sciences tion industry uses EPDM sheet to drape over damaged buildings. Longer term, there will be a large volume of EPDM needed to repair damaged buildings. The same effect Quantities available from was seen last year, he says, when three hurgram to commercial scale ricanes hit Florida. The net effect is that synthetic rubber makers are expecting even better times once Please Visit Us a t CPhI 2 0 0 5 Hall 8 , Stand C 5 4 weather-related woes are behind them. This 1100 Cornwall Rond · Monmouth Junction · NJ 08852 • 732.274.0037 ext 100 (p) is a welcome change in an industry that of732.274.0502 (f)
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"The world's major tire producers have been unable to weather the battering they have received through rising costs."
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