Technically, there may not be a material shortage in the silicone elastomers market, but it certainly does feel like it. Several factors have combined to create a tight market. There has been growth in silicone markets around the globe, but also some capacity taken out.
While many say supply likely doesn’t technically exceed demand, the current line between supply and demand is so fine that every little incident is amplified, be it an extended plant shutdown or weather that impacts shipping routes.
In the past, those were more like tiny speed bumps that the market dealt with in the normal course of business. Now they are issues that cause short-term chain reactions across the entire supply chain.
Extra supply in these situations in the past would routinely be sourced from Asia or Europe. But Momentive shut down capacity at its Leverkusen, Germany, silicone factory, so that continent no longer has as much material to export.
And for several reasons getting supply from China is less of an option. First, makers of finished silicone goods in China have been taking up a much larger share of the domestically produced silicone, so that leaves less available material to export. In addition, the Chinese government has been cracking down on environmental standards, and even chemical manufacturers who are following the regulations and want to put in capacity expansions are seeing a much longer lag time in gaining permit approval.
The vast majority of silicon metal—the upstream material used to produce silicone—also is in China, and tariffs enacted several years back make silicon much more costly for U.S. silicone producers who need the raw material.
Silicone in some ways has followed the path of EPDM. The market for that elastomer some years back got so tight, some customers had to look toward alternative material choices. When more capacity finally came onto the market, pricing became more volatile.
Industry insiders say the silicone rubber market isn’t as used to such fluctuations in pricing. But that has changed, with all major suppliers enacting substantial price increases of up to 30 percent.
On the one hand, things are good in silicone, with widespread growth. But on the other, the prosperity has helped bring about this tight market, and there doesn’t appear to be any help on the near-term horizon.
It’s a business where many say the economic factors three years ago didn’t make it financially feasible to add more material capacity. And now, if prices do remain at a level to support such investment, it would be several years before projects of this magnitude could bring about capacity relief.
In the meantime, silicone customers must pay close attention to supply management and maintaining excellent relations with vendors. After all, you don’t want to be the customer that gets moved down on the priority list.