Rubber in the Americas: 2004 the global connection.
Bayer Polymers LLC, jointly sponsored the 2004 annual invitational Rubber in the Americas symposium to discuss key issues in the synthetic rubber industry. This year's theme focused on ways to connect with the globalization process for the future success of the industry. Rubber in the Americas brought together representatives from all tiers of the rubber industry. A series of spirited presentations encouraged participants to examine various avenues to growing businesses in the face of both the new opportunities and challenges being opened up as a result of rapid changes in the global market place.
In his opening remarks, Dr. Boudewijn van Lent, Vice-President of Technical Rubber Products--North America for LANXESS Corporation, pointed out that global volatility is inevitably accompanied by rapid change in the business environment. The rubber industry is presently experiencing this kind of change as new customers and new competition arise from unprecedented growth in the Chinese economy. "You can fight or you can adapt," said van Lent. "Fighting change is a losing strategy. Today, more than ever, I believe that we need to work together to streamline our entire supply chain--not just for more viable individual companies, but for a more competitive and sustainable North American industry."
CONCEPT TO MANUFACTURING--THE FIRST STEP IN LEAN MANUFACTURING
In his keynote address, Robert Rapone, CEO and President of BRUSS North America Inc, challenged his audience to think beyond the factory floor when considering Lean Manufacturing. He believes the Lean Manufacturing concept embraces three distinct business methodologies: concept-to-manufacturing --before we build the product; order-to-cash-the building of the product; service-to-market--how we interact with customers and suppliers in order to support the system.
"Our traditional product development methods were far from systematic", he told the audience. "There was a lot of garbled communication among design engineering, customers, suppliers, procurement, and manufacturing.
Then we would send the product to manufacturing for customer trials. This process confused us, our customers and our suppliers," Rapone explained.
"The success or failure of a new product is determined long before we get to the shop floor," said Rapone. "Concept-to--Manufacturing is an early stage product development process where the activities of each of the disciplines involved are interlocked. And top management's job is to monitor a product's progress through that process."
Rapone identified two distinct phases in an accountable product development process--Concept-to-Design and Design-to-Manufacturing. Accountability, for Rapone, is key to the entire process.
Every project needs three documents: a Product Initiation Feasibility form; a Product Plan Requirement which is a multi page report that talks about product opportunity, product description, and product strategy; a Milestone Schedule including key program dates, key testing dates, sample builds, responsibilities, action item register and customer deliverables.
"One of the most important buy-ins for the Milestone Chart is the customer," Rapone cautioned. "The customer needs to agree to the downstream price, product and quality differences that will arise from changes they suggest before, not after, production."
The Concept-to-Design phase involves both proof-of-concept and generic design validation stages. Proof-of-concept focuses on confirming design viability and developing product/process alternatives. Customer deliverables for the proof-of-concept stage include a basic technology review, generic concept samples and a generic concept price quotation. During the generic design validation stage, the baseline design is finalized and the concept made ready for commercialization. Customer deliverables for this stage include a detailed technology review, a design validation test report, and design validated prototypes.
The second phase, Design-to--Manufacturing, sees a transformation from a design to a manufacturing process. Customer deliverables here include drawings, specific price quotes, a detailed technology review and customer-specific samples with production intent.
In the launch readiness stage, all customer qualifications are met and logistics, manufacturing processes and products are qualified. The business model shifts from Concept-to-Manufacturing processes to Order-to-Cash.
Next, the product moves on to the shop floor preparing for mass production trials, mistake proofing, customer production trial approvals and production readiness. Now the customer deliverables are the customer Production Part Approval Process, customer specific production samples and customer documentation to receive approval for a start of production date.
Rapone reminded his audience that companies make money by shipping product from the loading dock. "It takes the whole process to make that happen," he told them. "Just making more pieces will only leave inventory on the dock. If you do the development work properly, the shop floor is easy. When we put this into effect, we did less testing, required fewer resources, and reduced our costs. Because of Concept-to-Manufacturing I have the ability to change things by keeping it simple."
DEVELOPMENTS IN THE ASIAN MARKET
"Momentum in Asia cannot be changed, but it will change how the rubber industry conducts business in the near future," said Steve Nieto. With more than a decade of direct experience in Asia, Nieto should know.
"Clearly there is more to Asia than China, but China is driving the region," he said. Nieto told his audience that not only is the Chinese economy growing in size, but the quality of consumption is keeping pace as well. "Volkswagen has the largest market share in China," he said, "but today you can see almost every brand of luxury car there."
He went on to say that 43 foreign and domestic car makers are operating in China today.
"I don't believe that the country can support this level of activity," he cautioned. "There will be some losers, but by 2010 China is expected to become the world's second largest automobile market with a demand for 14 million cars--more than 300% growth over last year." With the automotive industry as the rubber industry's main driver, China's share of world rubber consumption is growing exponentially, he observed.
Nieto went on to note that the effects of change in China are already being felt in the U.S. He pointed out that Wal-Mart accounts for one-eighth of all Chinese exports back to the U.S. "One reason jobs are moving is because we want cheaper consumer goods. Another is that China has 1.3 billion potential customers," he remarked.
While low cost labor is most often cited as the cause for the move to China, he observed that raw materials tend to cost 10-20% less. "Some U.S. suppliers have been selling cheaper into the Chinese market to get market share and that has just been hurting our industry here in the U.S.," said Nieto. In addition, the high cost of gas and oil are driving manufacturers from the U.S. Gulf Coast to locate closer to oil supplies. The first wave of petrochemical facilities is beginning to come on stream in China, a fact that will shift the location of raw material production for the rubber industry.
What Nieto called industry displacement is also an emerging issue. He drew on the example of EPDM. Recent announcements of plant closures will result in a 9% reduction in U.S. capacity and a 15% reduction in Japan. At the same time, a new plant is planned in China. "But the Chinese market is not ready to support that production growth, so that means that product will be exported out of the country."
In the past the rubber consumption in China has been mainly shoes, toys and tires--about half of the global shoe production is there today. As automotive production increases, so will the demand for more technically challenging parts production. But Nieto cautioned that intellectual properties are difficult to protect in China. "Remember that wages are $300 per month or less," he said. "For $1,000 you can buy quite a bit of information."
"China's growth is also driving some non-linear development trends," Nieto observed. "China is now the world's largest consumer of cell phones. Because they are not wired, they just moved directly to cell phones." He said that we should expect other non-western development patterns in the future. For example, the Chinese automotive industry might go directly to drive by-wire, a development that could have significant consequences for the rubber industry.
THE GLOBAL MARKET TRENDS IN THE RUBBER INDUSTRY AND HOW TO SUCCEED IN TODAY'S FAST CHANGING WORLD
"Of course hindsight is always perfect, but to stand in the present and attempt to anticipate the future you need quite a lot of information," observed Juergen Gunther, Head of Global Marketing for Technical Rubber Products for Bayer AG. He pointed out that the annual global GDP growth has slipped from around 5% in the 1960s to under 3%, a level at which most forecasts anticipate it will stabilize. Europe's share of global GDP has fallen steadily from over 40% in the 1960s to under 30% while North America's participation has remained more or less stable between 34% and 36% since the mid-1980s. Over this same period, China and other Asian GDP participation has almost tripled, from less than 5% to almost 15% of the global share.
Gunther presented data that demonstrated rubber consumption in total is still growing in both tires and technical rubber consumption. While there was rapid growth up to 2000, it is believed that consumption levels have stabilized, particularly in North America. In Japan there was also huge demand acceleration between the 1960s and the 1990s, but there has been no growth in that market since. Gunther's forecast for China is quite different however. He remarked that while there has always been some growth in Chinese consumption, it can be expected that until 2020 it will exceed the combined European and North American markets.
Around 2013, technical rubber will surpass tire rubber consumption in synthetic rubber manufacturing. The market share now is about 50/50 but the proportions are expected to shift to 45/55 in favor of technical rubber goods. Asia's share in this market will increase to about 1/3 of world consumption by 2003. Gunther added that passenger car production growth in China will increase from around 5 million to 35 million vehicles by 2020. He projected that Europe will maintain the leading portion of the global automotive market with the Asia Pacific region in second place and North America, third.
"Produce in the region where your product is consumed," said Gunther. "Don't manufacture in some other region and export to them." He told the audience that the need for strong supply partners in Europe and North America would remain. "But we also need to grow with the developing areas of the Asia Pacific," he said. "To remain strong and successful in the future we must continue to service our strong relationships in Europe and North America and pursue new partnership opportunities in Asia."
THE ECONOMIC OUTLOOK FOR 2004/05
John McDevitt brought an economist's perspective to the discussion, giving a brief overview of some of the challenges facing NAFTA manufacturing concerns in the near-term. Oil prices are expected to slow global GDP growth by about six-tenths of one per cent next year. Growth in China, which has been running at over 9%, will drop to around 7%, said McDevitt. "It will feel like a recession in China," he remarked. European economies continue to be sluggish, led by Germany. "The best of the German companies have foreign subsidiaries playing a large part in their economic outlook for the year," McDevitt told his audience.
The major hurdles to economic growth in the near term will be high oil prices, flat real income growth and higher interest rates coupled with a difficult political year ahead. "There is also an X factor to consider," said McDevitt. "This is a complete unknown that will seem to come out of nowhere--this can be anything from discovering Bin Laden to a natural disaster." X factors can alter economic performance on any scale--global, regional or national, he explained.
Global economic growth in 2004 should be about 3.7%, slowing to around 3.1% next year. For well managed companies this should translate into an increase of about 7% in volume--about twice GDP growth, McDevitt explained.
European growth will be only about 1.5% in 2004, strengthening to about 2% in 2005. Central and Eastern Europe, however, are growing at twice this rate. Germany remains sluggish at less than 2% in 2004 and 2005. Asia Pacific and North America will both be about 4.5%. Exports to China and the U.S. have helped Japan emerge from its slump to grow about 3.2% in 2004 which is in line with its annual growth from 1986 to 1995.
He went on to tell the audience that today China's economy is overheated at 9.1% growth and industrial output is up 23% over a year ago. That will slow to about 7.8% in 2005. China's currency is also significantly over-valued and may undergo a 10% revaluation, perhaps as early as next year. "This is a leading reason for building market share in the region to offset shrinkage in the overall markets themselves," he urged.
"You cannot not be there--either directly or indirectly," McDevitt warned. But he added that it is not necessary to go to China to be involved in the Chinese economy. By being creative and innovative you can get your products into China through other portals. About 35% of China's exports come from Hong Kong, for example. By 2020, he said, four world economies will dominate--China, India, Russia and Brazil (which is becoming a key supplier to China). "Use your trading relationships with other countries. You can use these relationships as a back door to China," he urged.
McDevitt concluded his remarks by providing a quick method for determining the sales potential for their companies in China. "Take your 2002 U.S. sales as a ratio of U.S. GDP ($10,363.8 billion)," he instructed. "Now multiply that ratio by the GDP of China and you have the Chinese sales potential for your firm."
DEVELOPMENTS IN TPV
"For all of us sitting in the room right now, I really believe we will live to see an all-TPV weatherseal vehicle," said Jonas Angus in a far-reaching review of the trends and potential of the TPV (thermoplastic vulcanizates) market.
Angus encouraged the audience to look at TPVs not as a threat that will replace EPDMs, but as an opportunity to grow the EPDM (ethylene propylene diene monomer rubber) market. "When you hear about TPV, you should think EPDM, EPDM," he emphasized. That's because the composition of olefinic thermoplastic vulcanizates is about 50% EPDM. And with the huge potential for expanding the total TPV market, the end result will be better for EPDM producers."
Angus explored three areas that are expected to drive future demand for TPV: industrial rollers, electrical insulators and automotive seals--specifically, weather seals.
The often-overlooked industrial roller market uses 500 million pounds of synthetic rubber, said Angus. Predicting that this market will take off in four to five years, he observed, "The psychological barrier to using TPV for rollers has been broken and the market now seems to be fully ready for growth away from EPDM."
Angus pointed out that the printing industry will particularly benefit from TPVs advantages: no mixing, the ability to produce different colors and increased
roller thickness. In addition, TPV offers a processing advantage of producing very precise parts without curing.
Another potential market for TPV is electrical insulators for distribution lines. At present, these insulators are evolving away from heavy ceramics and towards lighter composites or polymeric compounds. Construction of an insulator involves a fiberglass rod with weather shields of EPDM, silicone or TPV. "The key is to prevent moisture from going into the fiberglass rod," explained Angus. "TPV is lightweight, lower cost, has better hydrophobicity than ceramic, longer life, and is shatter resistant."
The automotive weather seals market has the biggest potential for the TPV market, said Angus. "So far, TPVs account 2% of this market," he noted. "But the potential is huge--about $1.4 billion." At present EPDM is the dominant material for weather seals, but the market drivers moving seals to TPV include system cost reduction, design benefits, the ability to recycle TPV, ease of assembly and improved esthetics with colored TPV seals. At present, door seals are the only major seal remaining for TPV. Angus predicts that by 2005, door seals will begin to be converted to TPV, significantly expanding the overall market. "TPV really is a rubber that processes like a thermoplastic," concluded Angus. "There just needs to be a bit of a shift in mindset to see the possibilities."
AUTOMOTIVE TRENDS: TECHNOLOGY IN 2010
What will the automotive industry look like by the end of the decade and beyond? This question was tackled by Bayer Polymers' (now LANXESS Corporation) Bill Best.
Using results from a survey of the Society of Automotive Engineers (SAE), Best noted that, "The internal combustion engine will still be king by 2010, but there will be market share improvements for hybrid electric vehicles and clean diesel." Fuel cells, however, are projected to have little impact by the end of the decade.
Respondents to the SAE survey predicted that innovations in transmissions, steering and braking systems would have an impact by 2010. "They will all be hybrid systems over the next few years, but they will not replace current systems," Best explained.
Electrically assisted steering and electrohydraulic braking were mentioned among the top six technologies most likely to be developed. "Rubber people have to be aware of these 'electro' items," cautioned Best. "This is an interim step to by-wire technology for steering and braking. With by-wire, there are no fluids, no seals, no hoses and no belts. Some people predict that by 2015 over 20,000 tons of elastomers will be gone, thanks to by-wire technologies."
The majority--73%--of SAE engineers say fuel cells will make up less than 5% of the market by 2010.
Engineers have their opinions, but what about the average consumer? A U.S. poll shows that, unlike engineers, consumers think fuel cell technology tops the list of popular future automotive technologies. "The perception about fuel cells is dramatically different on the street," observed Best. "The popular vote is focused on 2020 and beyond."
For Original Equipment Manufacturers (OEMs), Best emphasized that Toyota is becoming a force to be reckoned with. "They have set a goal of 15% global market share by 2015," warned Best. Domestic manufacturers are closing plants, but the so-called "new domestics" (such as Honda and Toyota) are expanding. An 11% drop in auto production jobs is forecasted for the U.S. by 2010. Many of these jobs will move to Asia.
LANXESS will pursue opportunities in seals, gaskets and powertrain, said Best. Therban[R] and EVM Levapren[R] will be the focus. A number of challenges loom ahead, such as pressures to keep prices/costs down and the need to abide by various exhaust and emissions requirements. In addition, 100,000 mile/10 year warranties are expected to increase to 150,000 miles and 15 years.
Despite improvements to the internal combustion engine, the Japanese are taking a different approach. "All of their technology for the HEV (Hybrid Electric Vehicles) will be available for use with fuel cell," said Best. HEV technology reduces C[O.sub.2] emissions dramatically, playing into the "green power" movement. "Higher gas prices and richer government tax credits will also help boost the popularity of HEVs by 2010," he predicted.
And what of the hydrogen fuel cell? Even though the costs are high, it's a possibility for 2020, argues Best. "California's 'Governator' Arnold Schwarzenegger said he will have a hydrogen highway by 2010," noted Best. "And I believe him."
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|Date:||Nov 1, 2004|
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