Tire Industry Grapples With Raw Materials Challenges

- Nov 27, 2019-

TORONTO — Raw materials suppliers face various challenges in providing tire makers with the quality and quantity of materials they need, but they are more than prepared to meet those challenges.

This was the message representatives from three raw materials sectors — carbon black, natural rubber and synthetic rubber — had for attendees at "Driving to the Future," the 2019 Tire & Rubber Summit sponsored by the Tire and Rubber Association of Canada.

The carbon black industry is almost unrecognizable from the time carbon black was first invented in 1891, according to Robert Rist, regional director, product management, reinforcement materials at Cabot Corp.

"The early process was very dangerous, and not very sustainable," Mr. Rist said. However, both safety and quality grew exponentially, especially after carbon black was first added to tires in 1912. That addition, Mr. Rist said, increased tire life by 10,000 miles.

Now, there are more than 40 grades of carbon black, each offering different levels of performance to tire applications, he said.

Better treadwear, lower rolling resistance, improved processing, lower capital expenditures, reduced waste and a lower carbon dioxide footprint are only some of the advantages carbon black offers to tire makers, he said.

However, environmental regulations, impacts on feedstocks and supply/demand dynamics are all putting pressure on carbon black manufacturers, he said.

Consent decrees for environmental cleanup between the U.S. Environmental Protection Agency and carbon black manufacturers have diverted funds from industry expansion, according to Mr. Rist.

Canada's carbon dioxide emissions tax program under the Paris Accord also will affect carbon black makers, as well as Ontario's pending limits on sulfur-dioxide emissions, he said.

Carbon black has three major feedstocks, according to Mr. Rist: decant oil, ethylene cracker residue and coal tar. There are environmental and cost pressures on each, he said, and the International Maritime Association's MARPOL 2020 agreement, sharply cutting sulfur limits on fuel oil for tankers, promises to raise prices for decant oil.

While fuel oil isn't a feedstock for carbon black, he said, MARPOL 2020 will affect the differentials between fuel and decant oil.

The consequence of all this is plain, he said: "Tire investment is outpacing that of the carbon black industry."

Seven new tire plants have either opened or are about to open in North America, with no parallel increase in carbon black capacity, he said.

The U.S. carbon black industry is operating at 90% capacity with no new capacity coming online, he said.

Dennis Corson, senior vice president, sales and operations, Alan L. Grant Polymer

Despite the major investments needed to keep up with environmental challenges, the carbon black industry is primed for innovation in its materials, manufacturing and business model, according to Mr. Rist.

"Cabot is committed to partnering in innovation for meeting challenges of performance and sustainability," he said.

Natural rubber is obviously a vital component in a wide range of household, industrial, transportation and medical goods, according to Dennis Corson, senior vice president, sales and operations at Alan L. Grant Polymer.

"Two-thirds of natural rubber goes to tires, but many other applications wouldn't be possible without it," Mr. Corson said.

This makes the ebb and flow of NR supply and demand especially problematic for manufacturers and consumers dependent on the material, he said.

NR prices reached $6 per kilogram in 2010, prompting growers to plant rubber trees, according to Mr. Corson. Five to seven years later, the trees matured, creating an oversupply without a corresponding increase in demand, he said.

Sagging prices have been a disaster for NR smallholders, who produce 90% of the world's rubber, according to Mr. Corson.

There are 1.5 million smallholders in Indonesia alone, he said. The average smallholder in Indonesia has a five-acre plot of land and makes $69 a month versus the average Indonesian monthly wage of $161, he said.

"The natural rubber price environment is unsustainable," he said. "Prices have reached a 10-year low and are 40% below the 10-year average."

Under these circumstances, many NR smallholders are turning to other crops, such as cassava or palm, or leaving farming altogether, he said.

Mr. Corson said global NR supply will grow slowly to 14.8 million metric tons in 2021 from 14.3 million in 2019.

NR demand will equal supply in those years and the upward trajectory of demand shows little sign of slowing down, he said.

"New planting is not sufficient to meet increasing demand," Mr. Corson said. "Sooner or later there will be a shortage."

Meanwhile, global GDP growth in 2020 is projected at 3.6%, he said. China has a $1.6 trillion infrastructure plan in the works and Germany has one worth $325 billion, he said.

"I hope the U.S. will get it together to fix its roads and bridges," he said.

Ride-sharing and mobility-as-a-service are resulting in more miles driven and a greater need for replacement tires and parts, according to Mr. Corson.

Also, demand for NR sustainability and transparency are changing the supply chain for NR irrevocably, he said.

Karthika Kizhakke Vellate, senior procurement analyst, Beroe Inc.

"Price and performance are not enough anymore," he said. "There is a demand for responsibly produced materials.

"Supply disruption is a concern due to low prices and a slow replanting rate," Mr. Corson said. "We must make sure farmers are adequately compensated."

Nearly one-quarter of a new tire by weight is synthetic rubber, and styrene-butadiene rubber (SBR) is one of the major synthetic rubbers in tire manufacturing, according to Karthina Kizhakke Vellate, senior procurement analyst at Beroe Inc.

Seventy percent of SBR production goes to tire and automotive applications, according to Ms. Vellate. Nevertheless, the SBR market is oversupplied, with capacity exceeding demand by nearly 2 million metric tons and a compound annual growth rate of 2% to 3%, Ms. Vellate said.

Butadiene remains the driving factor behind the SBR market, she said. The feedstock represents 5% of the co-products by volume from naphtha cracking, but SBR has competition for the butadiene supply from ABS and NBR, she said.

"Butadiene producers decreased their dependence on SBR and took advantage of the tight supply scenario as demand from ABS and NBR grew in 2016 and 2017," she said.

Price volatility has been rampant in the butadiene market, according to Ms. Vellate.

"The butadiene market looks oversupplied, but it's not," she said.