Feedstock cost surge spurs price hikes
Gordon Graff -- Purchasing, 11/4/2004 2:00:00 AM
Prices of thermoplastic elastomers (TPEs) have been on the upswing recently, largely due to escalating costs of oil and gas from which they are derived. Growth of these materials—which combine the elastomeric properties of rubber with the easy processability of plastics—has been robust in automotive and construction sectors. But several TPE markets in North America, particularly footwear applications of styrenic block copolymers, have moved to Asia and are unlikely to return, say industry sources.
SUPPLY: Looking to Asia
TPEs comprise a diverse range of products, each with distinct supply, usage and pricing patterns. Broadly speaking, they can be divided into thermoplastic olefins (TPOs), styrenic block copolymers (SBCs), thermoplastic urethanes (TPUs), copolyester elastomers (COPEs), copolyester amides (COPAs), and thermoplastic vulcanizates (TPVs).
Production of one category of SBCs, known as styrene-butadiene-styrene (SBS), has been shifting to Asia in response to the movement of footwear markets for SBS to that region. In fact, there have been one or two world scale (100 million lbs/year or more) SBS plants opened each year in places like China, Taiwan and Korea for the past five or six years, notes Chris Mudd, general manager of Dexco Polymers LP. (Dexco is a Houston-based, 50:50 Dow Chemical/ExxonMobil joint venture that focuses on SBCs.) The result, he says, has been SBS overcapacity, particularly in North America and Europe, which has caused SBS margins for producers in those regions to "really deteriorate in the past two or three years."
Global sourcing by the North American auto industry is another factor promoting expansion of TPE production in Asia. Purchases by U.S. automakers of resins and molded rubber parts in China are expected to increase by five- or even tenfold over the next five years, predicts Robert Eller, president of Robert Eller Associates, an Akron, Ohio rubber and plastics consulting firm. Auto producers who consume TPEs are also insisting that their suppliers meet these specifications on a global basis.
DEMAND: Materials replacement
U.S. markets for all classes of TPEs are forecast to rise 5.8%/year to 1.5 billion lb by 2007 according to the Freedonia Group. Driving this growth will be replacement of other materials such as rubber, metals and thermoplastics by TPEs. In auto interiors, for example, vinyl, with its heavy use of environmentally troublesome plasticizers, is being challenged by TPOs, TPUs and TPVs. TPEs are also gaining favor because they can also impart soft-touch properties to many housewares, garden tools and personal care items.
The SBCs and TPVs have experienced double digit growth over the past three years, notes Eller. But severe price pressures have limited profitability of these materials, he adds, particularly in the auto industry, which accounts for 40% of TPE demand in North America.
PRICING: Pressure on producers
After reaching a mid-2002 tough, prices for most TPEs have been increasing steadily. Most responsible for this trend are escalating costs of hydrocarbon feedstocks and energy, which have roughly doubled in price over the past two years.
Nonetheless, nearly all segments of the TPE industry report a profitability squeeze due to their mounting feedstock costs. Manufacturers of SBCs have been particularly hard hit because their styrene raw material is derived from benzene, which has tripled in price over the past two years.
Several forces are keeping TPE suppliers from raising their prices high enough to cover their mounting costs. Among them, says Eller, are intensified global competition among resin-makers, global sourcing for molded parts, and the rapid increase in the number of TPE compounders.
Beyond TPEs, price hikes in other synthetic elastomers seem to be fairly tame. Jerry Whitlock, president of elastomeric seal and O-ring manufacturer EPM, located near Atlanta, says his company has been purchasing the synthetic rubbers EPDM, NBR and fluoroelastomers for 32 years and "we have never seen huge fluctuations in the prices" of these materials. Whitlock does expect the elastomers he purchases to eventually become more costly as petroleum continues to rise. But he feels his customers will not defect if he needs to raise prices "because the relative cost of a little rubber seal in a huge machine assembly is very small."
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