Timing. (Editorial).

Timing might be everything, as many believe, but if it's not, it's awfully close. Rubber is rubber is another thing many believe, but most of us know this to be far from the truth. These perceptions are at the root of many of the problems this industry has with the investment community.

Many will react to the news that Bayer and Ausimont both expanded synthetic rubber plant with the thought, "at this time?" The timing doesn't seem to be right with all of the reported overcapacity of synthetic rubber worldwide and the mothballing and decommissioning of plants. Bayer just shuttered a plant. Also, why would anyone expand in a time of economic uncertainty?

I'm sure some of these questions have surfaced within these companies, but the decisions were made more than two years ago. At that time, no one was talking about overcapacity, and the economy was doing fine. Then the timing was fine. But then, just as now, people outside of this industry have no idea that there is a difference between synthetic and natural rubber, let alone SBR and FKM. Bayer shutting down a SBR facility and expanding a NBR plant is an even trade to them. Ausimont spending $20 million to expand a FKM plant is just adding to the rubber glut, they think.

I'm sure these expansions would have been a harder sell at this time. The rubber industry is just one of the many industries in which Bayer and Ausimont (a member of the Solvay Group) participate. The $20 million investment by Ausimont and the 20 million Euro spent by Bayer had to have competition within the respective companies. These were sound decisions at the time, and regardless of the timing, they would be so today, as well. These expansions happened because these companies are growing markets with rubbers that face no overcapacity at this time.

But to the "rubber is rubber" people, these weren't wise decisions. And many of these people are financial analysts. They call frequently looking for background information, and their ignorance of the rubber industry makes you wonder just where their expertise is. They read about overcapacity of synthetic rubber and huge stocks of natural rubber and can't comprehend any type rubber expansion.

The facts are that the world will continue to consume more rubber. The timing might not be right in an analyst's eyes, but if you're not prepared to meet the increasing demand, your timing maybe too late.