Ravenna, Ohio — Silicone supply in the U.S. is still strained, and isn't likely to improve within the next two years, according to Erick Sharp, CEO and president of Ace Products and Consulting L.L.C.
Sharp described the challenges facing the overall market in part of Ace's free "Silicone Market Analysis" class offered through its iLearn Innovation Institute.
Some of those difficulties go back to 2017, as silicone precursor demand was strongly growing in Asia, because of competition to make silicone materials, he said. As that demand increased, events including regulatory factors, catastrophic events and capital expenditure demands came together to make "a perfect storm" in the middle of 2017.
At the time, the market saw large gains through automotive and construction advances as end users became more aware of the heat stability properties of silicone, he said. Liquid silicone rubber was another area of rapid growth, particularly in Asia. Medical applications also drove the demand of precursors, though they didn't cover the majority of the volume. Non-elastomer sectors also saw growth, such as beauty and health care, and coatings.
Sharp said the Asian market had some excess going into 2017, but constraints hit by about the middle of the year. One of those constraints was regulatory, as the Chinese Ministry of Ecology and Environment started to increase control of pollutants after global pressure, and audits began happening at silicone plants.
"For them to audit a silicone plant, it wasn't something they could do while the plant is operating. They had to stall the plant to be able to come in, take the sampling they needed to take in all the different sections and do the analysis," Sharp said. "Operational rates went from 100 percent to down around 50 percent, with some of them at 30 percent capacity during the entire second half of 2017."
Abatements for some of those audits went into 2018, as ramping back up to capacity took additional time, with China's supply then still running at 50-75 percent capacity, Sharp said. As Asian buyers became willing to pay higher prices for silicone, the European suppliers swung its supply there to support demand.
Then, as monomer supply became tight for North America, equipment breakdowns hit, taking regional operational rates down for up to two months. Another North American producer dealt with labor strikes, and the issues in conjunction as the European market focused on Asia created a supply gap in North America, Sharp said.
"Suddenly we have two producers in North America, one had a catastrophic event, one had labor strikes. Both are running at about 50 percent capacity and we're getting nothing from Europe," Sharp said.
As those factors played out through the year, it reached the point for scheduled maintenance shutdowns, he said. While some shutdowns were able to be opted out of, the fear of another catastrophe pushed others through. Continuous growth was still happening across silicone markets worldwide.
"Leading into all of these events, we were probably hitting about 75 percent capacity of what was out there in the market at that time," Sharp said. "When you hit 75 percent, and you see that you're on continuous growth, and there's no reason to assume there's going to be any plateauing or dropping off, you know you're going to tap out and you're going to need to add capacity at some point."
As the year went on, capital expansion announcements began to show up from several silicone suppliers, but most left details vague, Sharp said.
"This is September 2018, so it's still a hot time. People were still freaking out about supply," Sharp said. "It basically says, 'We're going to add capacity. We don't know where. We don't know what. We don't know how much. We don't know when. But we want to let you guys know that capacity's coming, so everybody doesn't get a little bit crazy and go out there and start switching away from silicone to other things.' "
Capacity announcements were meant to help stabilize the market to hold over customers struggling under the reductions, Sharp said. Some specified upstream production, meaning an increase in monomer production, where increases in downstream capacity meant a wider range of products once more silicone monomer became available.
Dow announced an expansion to invest both in upstream and downstream production. Currently, the only official announcement for upstream monomer production has been at Dow's Chinese operations.
"Right now, there hasn't been anything upstream announced for North America yet, but there has been downstream infrastructure improvements announced here in North America," he said. "There's probably still going to be more to come with these announcements, but these are what's out there right now."