Silicone demand set for a ‘strong rebound’ in coming years

Cleveland, Ohio – The silicones industry is set for a relatively fast recovery from the Covid-19 downturn, according to US market analyst Kent Furst. 

According to Furst, the silicone market is expected to be hit harder than the overall GDP decline of 6-7% in the US, however it also is expected to rebound more quickly.

"A strong rebound in the coming years is expected," Furst said. "It is expected that we will regain the ground we lost in 2020 by 2021," said the manager of polymers and materials at The Freedonia Group Inc., a market forecasting firm Freedonia Group in a 10 Nov presentation. 

"And the industry should rise above the high water marks in 2017-18 by 2022 or 2023," said Furst speaking at the online International Silicone Conference, held 10-12 Nov.

According to the analyst, demand fell during the great recession of 2008-09, and during a period in 2016 when China exhibited weak demand for silicone products.

At the time, the industry rebounded strongly, Furst said, adding he expected it to do so again following the pandemic.

In 2008, there was a decline in the global market of about 5.5% in silicone industry sales, while the pandemic is expected to push that downturn to more than 8%.

To review the chaos of 2020 through the lens of the silicone market shows a first quarter that saw weak pricing carried over from 2019, especially for commodities. The second quarter witnessed the most precipitous declines at between 15% and 25% as the full force of the pandemic took hold.

Automotive, personal care and construction all fell of the table, while medical, with its necessary PPE and ventilator projects, saw high demand for silicone products.

The third quarter saw some recovery in construction and automotive, as well as pricing somewhat firming back up with demand.

And the fourth quarter remains to be seen.

"Initially, it looks like recovery is continuing, though lock downs in Europe are still contributing to a slower recovery," Furst said.

Looking ahead, by market

As uncertainty caused by the pandemic remains, silicone products related to transportation (auto, aerospace, mining) and personal care will continue to show the greatest declines, while medical is predicted to continue as the strongest market.

Construction is expected to pick back up and already is showing signs of doing so, while silicone in electronics is expected to "fair a bit better than average," Furst said.

"Statistics are no substitute for judgment," Furst said. "Numbers are important, but the story behind the numbers is more important."

In construction, demand "is holding up better than most markets in 2020," the economist said. "New construction is picking up. The bad news is in commercial construction, which will lag considerably as businesses rethink their footprints in light of the pandemic."

Double-digit declines are expected in transportation for the silicone industry (on top of a weak 2018 and 2019), however Furst said there is good long-term potential here, especially for liquid silicone rubber specialties – a market that is still heavily focused on the US and Europe.

"LSR is a premium material," he said. "It will do better than silicones overall. There will be a decline, but it should not be significant,” he said. 

According to Furst, it all depends on the markets and their applications -medical is doing very well, especially for LSR. But more conventional applications, like generic automotive electronic connectors, are likely to decline.

In personal care, people continue to work remotely with few social gatherings. As such, silicones in this market show a sluggish long term forecast due to material competition and market maturity, as well as regulatory pressures, Furst said.

And as has been the case for many raw material markets, medical and health care continue to flourish.

"No surprise here," Furst said. "There has been a desperate need for PPE, and medical devices like ventilators drove demand. Ongoing safety measures implemented should continue to benefit this market."

In other markets for silicone products, oil and gas remains "way down" as drilling activity has declined. Paper and textiles remain "relatively weak," Furst noted, and machinery has been hurt by a poor industrial capital market.

Foam stabilisers used in furniture, like polyurethane, are seeing an upswing that has been aided by an improving construction sector.

Pricing, Furst said, is perhaps the most difficult variable to predict, with the exception of the political effects on the silicone industry.

Currently pricing is down, along with demand.

"It's very hard to forecast pricing," Furst said. "But I do expect pricing to firm up over the next year, and then incrementally after that. Pricing is relatively low for now ... and as long as that is the case, profitability will suffer."

The silver lining for the silicone industry is that it has shown historical resilience, rebounding within a couple years following the great recession. It is expected to do so again following the pandemic.

"By 2022 or 2023 we should be able to make up the ground," Furst said. "I expect the recovery will be about the same (as the great recession)."