Investments by Synthetic Rubber Producers Stall this Year; Outlook for 2009 Shows Slight Improvement

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Researched by Industrial Info Resources (Sugar Land, Texas)--At the start of the year, expectations for capital spending in the synthetic rubbers segment of the Chemical Processing Industry (CPI) were small. As the end of the year approaches, it appears the outcome will likely fall short of even the most conservative estimates for 2008 at only $50 million in new construction projects getting under way. This is a huge decline after nearly $230 million in capital and maintenance projects began construction in this segment in 2007.

A great deal of this slowdown can be blamed on the obvious: the loss of market share to international regions, extreme volatility of feedstock and energy costs and, of course, domestic automotive market woes. Each of these factors influence this industry segment greatly and when all of them combined reach troubled waters, it brings capacity investments to a halt. A number of producers have curtailed production or idled inefficient production units. Plant closures are a real possibility for old plants operating with less competitive technology.

The bright spot is the apparent resilience in this segment to plan aggressively for the coming year with an estimated $142 million in potential capital and maintenance spending planned to begin construction during 2009. American Synthetic Rubber Company LLC (Louisville, Kentucky) is currently planning another $50 million or more for the expansion of its chemical reaction area to support investments made over the last two years at the Louisville site. Solvay Advanced Polymers LLC (Augusta, Georgia) is evaluating possible expansions and debottlenecks of its Augusta site possibly in late 2009 that could cost $50 million or more over a two-year period.

Like most all industrial markets, the outcome of financial market failures in recent months is certain to have an impact on this segment and other segments of the CPI. Some will have a more short-term or immediate impact because of their close ties with the housing industry, and others will feel the effects of the current financial crisis months from now if long-term spending doesn't come to market as planned.

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