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TECH SESSION

GLOBAL RUBBER ECONOMICS

A “perfect storm”of market forces is driving up of the price of rubber.

Rick Hudson

GREAT CHEMISTRY: Bob Denton is RL Hudson's
director of Material Technology

by Robert Denton

In meteorology, multiple factors sometimes come together to produce a “perfect storm.”That could describe what’s happening in today’s world economy. It might seem that it’s just the price of oil; after all, rubber and plastics are made from oil, but just like the chemistry that goes into these seemingly simple products, there’s a lot more to the story.

The storm began to form with the unstoppable rise in the price of oil.Between 1999 and 2006, oil rose from $10 to $60 a barrel. Since then, it has more than doubled again, with little reduction in world demand. Contributing to increasing oil demand are the rapidly-growing economies of China and India, where cars are quickly replacing bicycles as the common mode of transportation. In China alone, car sales are expected to top seven million this year.

And, of course, it’s not just cars. The rapid growth of these two giant economies means an unprecedented level of competition for resources — and not just oil — among the world’s nations. Coupled with the declining value of the U.S. dollar against the other major world currencies, this scramble for scarce resources has contributed to major price increases for every material that goes into rubber and plastic products.

The U.S. currently consumes about 861 million gallons of oil every day.Of that amount, 390 million gallons are converted to gasoline, with 269 million gallons used in heating oil, diesel fuel, and jet engine fuel.The remainder, 202 million gallons, is used in the production of polymers (80%) and chemicals (20%). Not surprisingly, oil refinery streams — that is, the enormous variety of raw materials that come from petroleum — are optimized for fuel production.This means less polymer feedstock.

Now let’s take a look at a typical rubber compound, which consists of:

Keep in mind that the following simple analysis doesn’t take into account the many costs of extracting, refining, and transporting these materials nor the costs of manufacturing and transporting the rubber products made from them.Many of these costs are oil-related as well. For example, diesel fuel is now nearing $5 a gallon, twice what it was in 2005.

RUBBER ECONOMICS PRIMER

Some of the factors contributing to the rapidly increasing price of synthetic rubber include:

  • CRUDE OIL Between 1999 and 2006, oil rose from $10 to $60 a barrel. Since then, it has more than doubled again.
  • GROWTH IN ASIA The rapidly-growing economies of China and India are competing for both natural and man-made resources, including oil and rubber.
  • BUTADIENE The price of this key ingredient has gone up nearly 200% in the past few years. In addition, increasing global demand is creating a scarcity of the product.
  • DOLLAR DEVALUATION The declining value of the U.S. dollar has exacerbated price increases for every material that goes into rubber and plastic products.
  • FEEDSTOCKS Many polymers are based on feedstocks like butenes, butanes, propylene, and ethylene which are obtained from petroleum refinery streams, so oil prices have an immediate, direct impact on them.
  • CARBON BLACK This filler, which gives black rubber its color, accounts for 25–40% of compound weight. Producing one ton of carbon black requires 9.5 barrels of oil, 12,000 cubic feet of natural gas, and 550 kilowatts of electricity. Carbon black prices have more than tripled since the first quarter of 2004.
  • ZINC OXIDE This key ingredient in vulcanization systems is not made from oil, but its supply is limited and demand has increased dramatically, with prices going up over 150% since 2004.

POLYMERS Polymers are usually based on butenes, butanes, propylene, and ethylene. These materials are obtained from petroleum refinery streams or natural gas, so oil prices have an immediate, direct impact on them. At RL Hudson, we are currently experiencing significant monthly price increases, as our material suppliers no longer wait to pass on increases. The price of butadiene, a key ingredient in SBR, NBR, and other common polymers, serves as an example of the impact that oil prices have had on polymers. Butadiene prices have increased nearly 200% in recent years, and there’s no foreseeable reduction in worldwide demand.

Acrylonitrile, essential for the production of oil- and fuelresistant nitrile rubber, has increased by nearly 350% since 2004. And a similar pattern can be seen in the prices of most raw ingredients used in the production of rubber polymers.

FILLERS Used in nearly all rubber formulations,fillers provide key properties to specific rubber compounds.Carbon black is the most commonly-used filler because it provides the best combination of reinforcement and weather resistance. Carbon black can account for 25–40% (or more) of compound weight. Prices for carbon black have tripled since 2004. The production of one ton of carbon black, which is made via the controlled combustion of petroleum-based feedstocks, consumes 9.5 barrels of oil, 12,000 cubic feet of natural gas, and 550 kilowatts of electricity — much of which is generated by burning natural gas.

Mineral fillers such as clay and silica are also commonly used in rubber compounds, and because they’re not basedon oil, it would seem a simple matter to replace some or all of the carbon black with mineral fillers as a way to control cost. Three challenges immediately appear. First, despite many years of research worldwide, mineral fillers cannot be made to provide the reinforcement and weather resistance provided by carbon black. Second, mineral fillers are also used in paints, sealants, adhesives, cosmetics, paper, and a wide range of other competing applications. Third, even with mineral fillers, transportation and manufacturing costs have followed oil price increases and the weakening of the U.S. dollar.

PROCESS AIDS & ANTIDEGRADANTS Aromatic, paraffinic, and napthenic process oils are used in varying amounts as plasticizers and processing aids in nearly all of our formulations and, like polymers and carbon black, they’re derived from oil. There is also an extreme global tightness of supply in key non-petroleum-based raw materials (such as 2-propyl heptanol, isononanol, and phthalic anhydride) that are used to produce other types of plasticizers used in rubber compounds. Process oils have more than doubled in price since the first quarter of 2004, and, as with fillers, cheaper substitute materials, even when they’re available, cannot provide equivalent performance and service life.

Many antidegradants (protective chemicals such as antioxidants, antiozonants, and waxes) are petroleum-based. In addition, they (or the chemicals they’re derived from) are used extensively outside the rubber and plastics industry.

VULCANIZING SYSTEMS Zinc oxide is a key ingredient in most vulcanizing systems because without it, most rubber materials cannot be made to cure properly. A slow cure, coupled with a loss of physical properties, results from inadequate zinc oxide. Zinc oxide isn’t made from oil, so its price should be stable — but it’s not.When we use zinc oxide, we compete with influential industries such as bricks, ceramics, pharmaceuticals, cosmetics, fertilizers, animal feed, sunblocks, and other consumer products. U.S. based zinc oxide production capacity is about 74% of demand, with the remainder imported. The major zinc producers are China, Australia, Canada and the U.S. China used to be a major exporter, but now, almost all Chinese zinc oxide is consumed within China.

PERFORMANCE REQUIREMENTS All of the above factors have had a dramatic impact on the prices of rubber and plastic products, but there’s another, less-obvious one: the demand for ever higher levels of performance. Modern fuels and lubricants, coupled with tightening emissions standards, place extreme demands on rubber and plastic seals, connectors, boots, hoses, and containers. Add higher engine compartment temperatures, and only premium materials can meet the standards while providing the expected service life. Even surfacing products must meet ever-higher standards for resistance to abrasion and outdoor exposure as well as for color retention, surface staining, useful temperature range, and appearance.

As necessary as they are, environmental regulations also play a part. Many vulcanizing agents, antioxidants, antiozonants, plasticizers, and color pigments that were once in common use are now unavailable or are tightly restricted, and the list is growing.

At RL Hudson,we take these changes in the marketplace seriously. Our materials specialists, design engineers, and compounding and testing laboratory are dedicated to controlling costs while maintaining the quality our customers demand.We will continue to seek solutions through innovation and collaboration. That’s a promise.