INDUSTRY INSIGHT

Favorable outlook for GCC synthetic rubber producers

Growing demand for synthetic rubber is pushing the market worth up to almost USD 40 billion, making this a lucrative business for Arabian Gulf producers to invest in

Demand for synthetic rubber from industrial and consumer applications is expected to remain high as global population continues to rise and so does the middle class in key markets such as China.

The global synthetic rubber market is driven by rising demand for synthetic rubbers in applications such as tire, non-tire automotive, footwear, and industrial. By 2022 the market is forecasted to grow by 5.5% per annum to USD 37.8 billion.

Styrene-butadiene rubber (SBR) is the most widely used type of synthetic rubber and is predominantly consumed in the manufacturing of tires and tire products. In the GCC, SBR production commenced in 2017 with the establishment of Saudi Elastomer Project (SEP).
Demand for SBR is highly dependent on the automotive sector and long vehicle life coupled with a shift in consumer preference towards high-performance tires is likely to have a positive impact on the growth over the next ten years.

With large automotive demand in the region, local production of SBR in the Middle East has been gaining pace, with the majority of supply from local plants targeting local and regional markets.

Economic diversification is an important pillar of Saudi Arabia’s National Transformation Program. In recent years, the Saudi government has sought to develop a domestic automotive industry and encourage global manufacturers to establish local operations in an effort to create jobs for the kingdom’s growing youth, while facilitating the transfer of technology and skills.

icon
“The global synthetic rubber market is driven by rising demand for synthetic rubbers in applications such as tire, non-tire automotive, footwear, and industrial. By 2022 the market is forecasted to grow by 5.5% per annum to USD 37.8 billion.”
“As one of the largest automotive markets for both new and used vehicles among GCC countries, Saudi Arabia is also one of the largest markets for car tires. Due to a lack of domestic tire production, the tire market of the kingdom has been import driven.”

With the establishment of a synthetic rubber supply, there is a significant opportunity to develop tire manufacturing in-country. In 2018, a USD 1 billion tire manufacturing plant has been announced by National Tire. The company plans to build the factory in Jubail, an important manufacturing hub and home to the largest industrial city in the world.

The project will create one of the biggest and most modern individual tire factories capable of producing 16 million passenger tires and 6 million radial truck/bus tires a year. Production is expected to start by the second half of 2020, creating 4,000 employment opportunities at full capacity. The planned tire manufacturing facility is expected to substitute about 27-30% of all imported volume of passenger tires in Saudi Arabia, based on the current level of imports.

As one of the largest automotive markets for both new and used vehicles among GCC countries, Saudi Arabia is also one of the largest markets for car tires. Due to a lack of domestic tire production, the tire market of the kingdom has been import driven.

In 2016, GCC countries have spent USD 2.6 billion on tires imports at a growth rate of about 3.5% per annum over the past decade. Saudi Arabia is the biggest importer in the region, representing 54% of total volume imported to the GCC, followed by the UAE which accounted for 28%.

In addition to the current SBR plant, Saudi Aramco and Sibur (Russia) are planning to build a synthetic rubber plant in Saudi Arabia. Sibur was looking to export its synthetic rubber technology because of low feedstock availability in Russia and low domestic demand growth. Good feedstock availability in Saudi Arabia and advantageous access to the growing Asian markets could make the project attractive.

Feedstock for SBR is butadiene which is currently produced only in Saudi Arabia by SABIC through its subsidiary Petrokemya with production capacity of 150 ktpa. Past year was a chaotic year for butadiene (BD) market players, driven by sluggish demand from its top demand market – Asia. However, BD prices have been increasing since December 2017, pushing styrene butadiene rubber (SBR) higher.

Looking forward, SBR manufactures need to consider the drivers that create volatility in BD/SBR markets. Will markets become volatile, and what steps to take in the face of demand and price disruptions? These will be key questions to keep in mind as Arabian Gulf producers accelerate their efforts to build their manufacturing capabilities in what is promising to remain a highly competitive market.