Custom compounding: Market indicators pointing south

European custom compounders remain upbeat about prospects for business growth despite a slowdown in demand from automotive suppliers and several other key markets.

Sales among the top 10 companies – that provided revenue figures both for this year and last in the ERJ Custom Compounding Survey – increased by 5.6% year-on-year to Ä2,855 million.

There was just slightly lesser  decline of 5.3% when figures from Hexpol – by far the largest player  to provide sales figures both this year and last – were excluded from the comparative analysis.

The trend recorded in the 2024 ERJ survey represented a step back from the performance registered a year ago, when respondents reported a year-on-year revenue increase of around 19%, as markets rebounded from the impact of the Covid-19 pandemic.

More telling, perhaps, was the feedback from respondents, not least their ratings of current prospects for a broad set of elastomer compounds markets, worldwide.

Respondents to the annual ERJ survey – carried out between April and June – are asked to rate growth prospects by country/region, material-type and end-product markets, between 5 (high growth) and 1 (decline).

This year, the overall business-optimism rating by region averaged 2.53, down from 3.08 a year ago, with key markets such as Italy, Sweden and most notably Germany registering sharp declines.

Asked about current levels of demand for specific rubber materials, the average rating again came in well down on the prior-year average – to 2.69 compared to 2.91 in 2023. 

While some materials, such as EPDM, nitrile rubber, and HNBR remained fairly steady – including a slight uptick for styrene-butadiene rubber and silicones – there was a considerable reversal in sentiment regarding the market for natural rubber-based compounds.

Feedback on end-product markets confirmed the negative trend: the average business optimism rating coming in at 2.68 compared to 3.9 in 2023.

As in previous surveys, the performance of the automotive market offered an important marker: the normally powerhouse sector limping to a score of 2.3, compared to almost 3.0 a year ago.

Tallying with the above ratings, were the comments provided by the major players in the European custom compounding sector – both in their survey replies and financial reporting.

Setting the tone, Gummiwerk Kraiburg described the current market situation as “challenging, characterised by low demand and persistently high interest rates and labour costs.”

“Investments by our customers are being postponed, and inventories are sufficiently stocked. Unfortunately, there is no significant improvement in sight,” Kraiburg added in its response to the ERJ Compounding Survey 2024.

For the first quarter of 2024, Malmo, Sweden-based Hexpol Group reported a decline in revenues, due in part to slow demand from the automotive and construction industries.

Over the three months to 31 March, the compounding group posted a 4% year-on-year decline in earnings (EBIT) to SEK905 million (Ä18.4 million) on 11% lower sales of SEK5.3 billion.

The Swedish group’s biggest operation Hexpol Compounding reported a 12% decline in sales to SEK4.9 billion.

Sales to automotive-related customers were sequentially “stable” but were “down slightly” compared to first quarter 2023 due to “a lower production rate in the automotive industry.”

Likewise, sales to the building & construction sector came in “significantly lower” as did demand from customers in the consumer-related products sector.

Commenting on the results, acting chief executive and CFO Peter Rosen said demand from customers remained on the same level as the second half of 2023, while sales prices were stable.

However, added Rosen, uncertainty ‘remained high’ in terms of development of inflation, interest rates, Russia’s invasion of Ukraine as well as the situation in the Middle East.

UK-based Clwyd Compounders’ fiscal year runs to 30 November: a period last year characterised by “significant turmoil” due largely to raw materials supply issues as market supply-chains adjusted to geo-political crises amid solid global demand.

While steep price increases seen in 2022 had largely stabilised, materials costs remained “significantly above 2021 levels and look set to remain at these levels for the foreseeable future.”

Clwyd identified the fluorinated elastomer market as “particularly turbulent,” after a major supplier of these polymers decided to exit the market entirely – ahead of proposed regulatory restrictions on fluororubber materials.

Industry-wide efforts to source materials that would comply with such regulations tightened supply and increased costs for FMK and FFKM materials as suppliers adapted to the production of compliant grades.

Tight supply conditions were expected to continue until mid-2024 as the remaining suppliers reach full capacity, according to the Welsh compounder’s 2023 financial report.

Elsewhere, Garbagnate Monastero (LC), Italy-based Der-Gom, described the custom compounds market as“still weak and conditioned by [issues around] raw material availability and growing prices.”

Meanwhile, PMG of Cenate Sotto (BG), Italy noted that “a good part of the rubber market is worried” about what the European Commission will decide regarding PFAS.

“We are strongly committed to evaluating the product alternatives that FKM suppliers are submitting to us and, at the same time, trying to offer our customers an optimal development service to try to make us ready for the new polymer technology,” the Italian company added.

Also impacting the rubber compounds market are supply-chain problems due to Suez Channel situation and freight cost increase,” according to Turkish-based company Rekor.