Düsseldorf, Germany — In the runup to K 2019, Kraton Corp. informed investors that its full-year earnings would come in well below previous expectations due to a midyear decline in trading conditions, particularly in Asia.
The market is now experiencing a more broad-based global economic slowdown, which is unlikely to reverse by the end of the year, said Houston-based Kraton, which majors particularly in styrenic copolymer elastomers.
However, the business situation depends on which market region and product type looked at, according to Holger Jung, Kraton senior vice president and polymer segment president.
"HSBC [hydrogenated styrene block copolymers] material is actually going pretty well in the U.S.," Jung reported in an interview at K 2019.
However, he added that the Asian market overall is a challenge for Kraton, with sales having "stabilized on a lower level" following a significant drop about a year ago.
While Kraton has cited the impact of tariffs on the Chinese market as a factor in the business decline, Jung explained that the challenge is "not really tariffs per se," but rather Chinese consumer confidence.
"Basically, there is not a lot of tariff applied, for example, on our HSBC product, in fact, but the customer demand in China is down," the vice president explained.
"So, the tariffs are indirectly impacting the market. In addition, customer demand in Japan, Korea and Taiwan is lower because they deliver to Chinese customers," Jung said, adding that this has led to "kind of a ripple effect," pulling confidence down across Asian markets.
"Basically, we lost about 15-20 percent of HSBC sales compared to what we were usually selling," Jung said, while adding that the situation has now stabilized.
There is a positive perspective to the current market trends in terms of technology and innovation, according to Alberto Fornaro, director of market development at Kraton.
"Like every company, we need the bread and butter, but we like more the jam," he commented. "That is not simply about [higher] margins, but the fact that we are offering unique products that really fulfill the needs of the market and makes [Kraton's products] more necessary.
"Yes there are tariffs, but those grades that only Kraton can deliver are, to some extent, protected. That is why it is important for us to focus on innovation, as that is the way to become more robust in the case of a downturn," he added.
Fornaro pointed, for instance, to Kraton's new plant in Taiwan, from where a lot of products will go into specialty markets in Asia: "That gives you an indication that tariffs don't play an important role there and that it is just [about] consumer confidence."
For his part, Holger noted trends in the medical market, an important business area for Kraton. These, he said, include the impact of legislation against the use of PVC in areas such bags to containing intravenous solutions.
Due to a potential risk of leaching of phthalate plasticizers into the solution, the Chinese government some time ago decided that flexibilized PVC should not be allowed, whereas this matter continued to be debated in Europe and North America.
This, he said, has created demand for Kraton polymers as an ingredient blended with particular types of polyolefins to achieve good sealing in the inner layer, impact resistance for the middle layer, as well as transparency and very low levels of leachables.
Moreover, he added that PVC has very high density, which means more weight.
"So, when you look at the whole life cycle of a product, Kraton's styrenic copolymer materials offer a solution that is less impactful on the environment," Jung said.