The COVID-19 pandemic significantly impacted global demand for rubber process oil (RPO) in 2020. It is estimated that RPO demand declined approximately 15%, reaching about 2,750 KT in 2020. This represents a considerable improvement compared with earlier forecasts.
In mid-2020, RPO demand was estimated to decline approximately 20%-25% – better than expected. This was due to the strong recovery in rubber and tire production in Asia during the second half of 2020, especially in China, where tire production declined only 3% in 2020. Moreover, the slight growth in rubber demand in China – which is the largest market for the product globally – was spurred by the healthcare industry in 2020.
As a result, RPO demand in China declined marginally, by an estimated 3%. India and South Korea – also major markets in Asia – declined approximately 19% and 12%, respectively. North America and Europe declined 16% and 20%, respectively. North America declined less than Europe, as the United States, the largest economy in North America, never experienced a national lockdown. In contrast, major European economies such as the United Kingdom, Germany, France, Italy, and Spain were most impacted by the COVID-19 pandemic, due to strict national lockdowns to contain the spread of the virus.
Purchasing practices and prices of RPO were also impacted by the pandemic, as RPO demand declined. Prices dropped 10%-20% in 2020. However, there were instances where prices increased. For example, in the United States, prices of lighter grades of naphthenic RPO registered a marginal increase during the year. This is because key suppliers were able to manage their inventory by focusing on other applications, such as medical uses, e.g., rubber tubes. Historically, price, quality, and compatibility have been the major factors to consider when choosing a suitable RPO grade and supplier. However, availability became a very important consideration due to supply–chain disruptions amid COVID-19 lockdowns. Price also grew in importance, as end-users focused on buying RPO at the lowest possible price to save their margins.
The dynamics and product mix of the RPO market varies from one region to another. For example, the United States is primarily a naphthenic and paraffinic RPO market, while Asia and Europe are mainly aromatic markets. TDAE became the leading RPO in Europe, while DAE remained the dominant RPO in Asia, especially in China and India. This is expected to change, as some countries, e.g., China, move toward stricter environmental regulations. However, this shift is expected to be slower, with the economic impact of the COVID-19 pandemic pushing it back by a few years. Further, the emergence of bio–RPOs continues, especially in Europe. However, this trend is also expected to slow due to the economic impact of COVID-19. Bio–RPO demand is projected to grow at a compound annual growth rate (CAGR) of approximately 12% during 2020-2028, albeit from a small base. However, it should be noted that bio–RPOs are in the nascent stage and their demand is expected to remain low over the next five years.
In terms of supplier landscape, the market is expected to remain fragmented, with local suppliers gaining importance post-COVID-19 as RPO availability becomes a key concern.
Southeast Asia is likely to emerge as a key market for rubber process oils over the next few years. Orgkhim and PT Enerco have commissioned TDAE plants in Malaysia and Indonesia, respectively, over the past year of two. As tire demand grows in Southeast Asia and as tire manufacturing shifts from China to Southeast Asia, RPO demand is expected to increase in the region.
Kline estimates that the global RPO market will grow at a CAGR of more than 3% during 2020-2028, recovering to pre-COVID-19 levels by 2022. Our Global Rubber Process Oils: Market Analysis and Opportunities report explores market opportunities for rubber process oils against this backdrop.