Supply-side pressure grows while demand matures

By By Elena Epatko Murphy -- Purchasing, 3/8/2001

Even as demand for elastomers matures, supply-side pressures will keep prices from softening significantly in 2001. Demand is slowing for elastomers, though there are new applications and end-use products that will use these materials. At the same time, feedstock prices are high and there is little relief expected this year. The result will be slightly higher tags.

"The economic slowdown that began at the end of 2000 and shows all signs of continuing, will certainly have an impact on 2001 demand for polyurethane elastomers," says Patricia Boyd, director, Elastomers Business Group, Polyurethanes Division, Bayer Corp., Pittsburgh, Pa. According to Boyd, polyurethane elastomers "accounted for approximately 15% of NAFTA (North American FreeTrade Agreement) polyurethane market in 2000" about 900 million pounds, in a market projected to reach six billion pounds.

Don Hummel, senior vice president, marketing and sales, North American Rubber, Bayer Corp., Akron, Ohio, says, "The last quarter of 2000 saw a softening market for elastomers in North America." He notes industry-wide shipments in October and November were "about 8% below the previous year" as shipments to OEMs (original equipment manufacturers) slowed.

The outlook is only slightly better for thermoplastic elastomers (TPEs). Bob Liskiewicz, vice president-sales and commercial services, Advanced Elastomer Systems, Akron, Ohio, says the global market for TPEs will continue to expand 6%-8% annually over the next several years. With automotive demand likely to fall between 5%-10% through the first half of this year, he says TPE orders will grow at a slower rate. However, Liskiewicz sees continued opportunities for rubber replacement due to TPEs' lighter weight, as well as the ability to be recycled and to absorb color.

The Freedonia Group, Cleveland, Ohio, forecasts demand for TPEs to grow 6.7% annually to 1.4 billion pounds in 2003, a faster expansion than that of the general economy. However, analysts at the market research firm say TPE demand continues to mature. In the past, substituting TPEs for natural and synthetic rubber drove market growth because TPEs exhibit more durability and are more manageable to process than traditional rubber-based elastomers, according to Freedonia.

The only significant opportunities for TPE expansion are in new applications. For instance, Freedonia identifies interest in "soft-touch" personal care products. There also is a movement toward substituting elastomers in medical products, such as hoses and tubing, and where latex products have caused allergies.

Automotive continues to be an important market for thermoplastic elastomers. Instrument panels and door panels will be primary uses for TPEs as automakers reduce weight and consolidate components, according to the market research firm. For instance, Advanced Elastomer Systems provides the TPE used in a DaimlerChrysler minivan door seal.

Despite softer demand, prices for elastomers will remain steady and increase slightly in some instances. Sources attribute the price stability to supply-side pressures on elastomer producers, which are expected to remain high through the year.

Bayer's Boyd says polyurethane elastomer suppliers, "like most other chemical producers, continue to feel the full impact of significantly increased costs for energy and raw materials that began to rise in 2000." Higher prices for natural gas in particular have had an effect on the industry, she notes.

However, rising costs of feedstock materials will prevent prices from falling even in this mature market. Boyd says higher raw material costs are affecting two primary components of most polyurethane elastomers. She points to Aniline, a feedstock for MDI (diphenylmethane diisocyanate), which "is up dramatically this year, driven by an increase of more than 50% in benzene prices." In addition, propylene costs, a significant part of polyol pricing, jumped 70% in 2000, "and is forecast to remain at that level in 2001," she says.

Prices for thermoplastic elastomers (TPEs) are stable. Advanced Elastomer Systems' Liskiewicz says his company's 5% price increase last year was successful, but new industry competitors will cause prices to slide 1%-1.5% over the long term. He says relief from raw material increases will occur, but only gradually over the next few years.

Elastomer supply will be plentiful throughout this year. Significant acquisitions and divestitures have occurred, but so far there is no impact on capacity. Some leadtimes are extended as this material is used in a wide range of applications.

There have been significant shifts within the industry. Late last summer, The Geon Co. acquired M.A. Hanna Co. to create PolyOne Corp., which is based in Cleveland, Ohio. In November, BF Goodrich, Charlotte, N.C., a dominant source of elastomers, sold its Performance Materials division.