Will the Blow of Environmental Protection Hurricane Cut off the Supply of Raw Materials Used for Tires?

22 December 2017 | Source from China Rubber Journal

During the RubberTech China 2017 held from September 20 to September 22, the reporter learned from the interviews with tire companies that since this year, the raw material products like rubber chemicals and carbon black saw not only a remarkable rise in prices but also an insufficiency in supply. The supply is so “disturbing” that many companies were worried that their normal production might be affected. The reporter thus interviewed relevant raw material companies on this matter, learning that the market had saw a reverse this year. It used to be that raw material companies begged tire companies for accepting their material supply, yet now the fact is that tire companies tend to actively contact material companies and request them to guarantee supply. So what is it that has caused the tight supply of raw materials? Is there any guarantee of stable supply of raw materials used for tires?

Two major reasons have caused the tight supply and rising prices of raw materials

“Since the beginning of this year, the prices of rubber chemical products have largely been rising by around 30%, among which the prices of several products have even surged by 50%.” The reporter was so told by Wang Shuhua, chairman of Kemai Chemical Co., Ltd. Two factors had contributed to this: one is the rise in

prices of raw materials used in the production of chemicals; the other is the insufficient operating rate of companies — the operating rate of the industry remained at 70% to 80%, thus contributing to the imbalance between the supply and demand of resources.

According to Wang Shuhua, the price of the raw material aniline remained steady in the first quarter of this year. But with strengthened efforts in environmental protection, upstream companies started halting production for a long time since the second quarter. The price increased by 29.76% to the current RMB 10,900 Yuan (price for per ton, same below) from RMB 8,400 Yuan at first, causing the shortness of supply. Moreover, in terms of liquid oxygen, which is the cleanest oxidizing agent for rubber chemical products like DPG and MBTS, its price used to be between RMB 600~800 Yuan normally, and had rarely gone beyond RMB 1,000 Yuan historically. However, since steel companies started to use natural gas and a large amount of liquid oxygen instead on account of environmental protection, its price went abnormal from May to August, resulting in huge tension in the market and its price surging to RMB 2,800 Yuan. In addition, the factories producing the raw material dicyclohexylamine which is used for producing DCBS have shut down massively this month due to environmental factors, causing its price to increase to RMB 19,000 Yuan from RMB 12,500 Yuan. Still, chemical companies have no access to the materials. 

“The price of the raw material carbon disulfide has risen by 70% to over RMB 6,000 Yuan from RMB 3,500 Yuan and is still on the rise.” Wang Zhiqiang, general manager of Weilin New Materials Technology Co., Ltd., told the reporter.

Que Weidong, chairman of Quechen Silicon Chemical Co., Ltd., said, “Against the background of strengthened efforts in environmental protection and the supply-side reform, the prices of raw materials of white carbon black such as sodium carbonate and sodium silicate have been affected in recent years. Since this July or August, the price of sodium carbonate has risen by 60%. And the price increase has spread to Jiangsu from the North, affecting production to a great extent.”

As a manufacturer of small variety chemicals, Jiangsu Ka’ou Chemical Co., Ltd. has felt the pressure brought by the rise in raw material prices, too. Fu Qiuming, general manager of the Company, said in an interview, “Unlike the raw materials used for the production of bulk chemicals, our raw materials saw a surge in price for some time early this year and a constant modest rise since then.”

Environmental Protection Hurricane Guides the Industry toward a Healthy Path

“The implementation of the new environmental protection law and strengthened efforts in environmental supervision and inspection are acclaimed by the leading companies in the industry,” said Wang Shuhua. Environmental supervision and inspection pushes companies in this industry to be more self-disciplined and to invest more in environmental protection, treatment of “the three wastes” and the adoption of clean technologies. Thus the companies will deal with environmental issues in an active rather than passive manner.

“As price competition will win no market for anyone under the most strict environmental protection law, everyone starts to compete with others properly and fairly”, said Wang Zhiqiang.

“Opportunities are always left for those who are ready”, said Wang Shuhua. The company brings in MVR technology and conducts R&D on it in terms of the core aspect of chemical production in waste water disposal. Since 2012, it has started survey, initiation and implementation. Over five years since then, it has invested over RMB 100 Million Yuan totally in its two production bases in Inner Mongolia and Tianjin, successively developing the technology of reclaiming waste water from rubber chemical production. “The previous investment was officially implemented two year ago. In hindsight, I have now indeed benefited from it under the current circumstances where environmental protection is stricter than ever.”

“With the standard for environmental protection being raised, we have made corresponding investment in the aspects of environmental protection and equipment capacity, by which we smoothly passed the most crucial period early last year. Capacity integration starts to take effect through government measures, and companies that obey regulations and laws start to benefit from that”, said Wang Zhiqiang. With the hurricane of environmental protection, the development of the industry will become healthier. Companies that are not environment-friendly will get into trouble sooner or later.

Long-term Strategic Cooperation Is Preferred as the Supply Capability Is Stable

Wang Zhiqiang said, “There has appeared a contradiction between supply and demand, after all. We dare not take orders rashly any more. Our priority is to guarantee that our regular clients’ demands are met. After all, we have been united in overcoming all kinds of difficulties to achieve development. Then, we will consider taking orders from new clients based on our capacity.”

Que Weidong said, “Under such circumstances, it is more necessary that we consider things from the perspective of our clients, rather than join an alliance for collusion on prices. We must not focus only on the shortterm benefits but give consideration to long-term development. Our decision is to finish existing orders and contracts without having prices raised. Done with those orders, we will absorb part of the price rise as much as possible, in the hope of going through hardships with clients after communicating with them. Over the twelve years of commercial operation of Quechen, our idea on operation has always been ‘timely delivering the best products at the most competitive price to the clients’. Business operation is a marathon that has no end. What matters is to find out how to create profits sustainably, so we have always been pursuing a strategic partnership with our clients.”

Fu Qiuming told the reporter that the business operation of this Company will be in accordance with the market strategy of “securing advantageous clients, developing major foreign clients and expanding the market share of tire clients”, constantly increase the level of management and strengthen our efforts in R&D, as well as enhance close cooperation with our major clients.

According to Wang Shuhua, Joege Almedia, vice president of German Continental Tire who is responsible for global purchase, visited the International Exhibition on Rubber Technology in Shanghai for the first time this year. One task of his visit was to discuss matters on further cooperation and the possibility of signing long-term orders based on nearly ten years’ cooperation with Kemai.

Wang Shuhua told the reporter that normal rubber chemical companies in China are investing more heavily in environmental protection, and there is no major problem with the overall supply capability. Therefore, the market doesn’t need to panic too much. 


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