The global rubber consumption is expected to slow down in the next five to 10 years due to slower tire demand. Since tires are the major consumer of rubber and rubber process oil (RPO), the demand for RPO is expected to grow slower during this period. However, demand for other rubber goods, such as shoes, toys, tubes, hoses, and belts, among others, is expected to grow and drive growth in the RPO market, which is estimated at close to 3.3 million tons globally in 2018.
In terms of product segments, aromatics comprising DAE, TDAE, RAE, TRAE, and MES are the largest product segment, accounting for close to 52% of total demand. Aromatics are followed by naphthenic and paraffinic RPOs, which account for 31% and 17% of total demand, respectively. It is to be noted that since 2013, aromatics have lost about 5% market share as tire and other rubber goods manufacturers look for alternatives for aromatics. This is mainly due to a ban on DAE in the European Union that forced tire and other rubber goods manufacturers to use TDAE and RAE. Additionally, other regions such as Asia are also moving to “greener oil” with less polycyclic aromatic hydrocarbon (PAH). TDAE is the best available alternative for DAE but is expensive, while RAE gives poor performance. RAE is preferred in truck tires and conveyor belts, while TDAE is dedicated to passenger car tires. As a result, rubber goods manufacturers are increasingly adopting paraffinic and naphthenic RPOs. Naphthenic RPOs are a good substitute for TDAE and RAE, as they offer solid performance and availability. Naphthenic suppliers have included a 5%-6% bio content to formulations to improve polarity.
The U.S. and China are the largest RPO markets in the world, followed by India, Japan, South Korea, and Germany. Indonesia, Thailand, Russia, Turkey, and Brazil form the next tier, followed by Malaysia, France, Poland, and Italy. Together, the 15 countries studied in the report account for more than 75% of global RPO demand.
In most countries, the industry is dominated by local suppliers with a few exceptions, including a single EU market and a few countries in Asia. However, even in these markets, local players have a significant presence. Hence, local dynamics affect the market to a large extent. Tire companies also prefer local suppliers to ensure secured supply and prioritize RPOs available locally.
Kline sees two emerging trends in the market. First is the emergence of bio RPOs. Currently, bio RPOs demand is only seen in Europe, where the demand is extremely low (less than 1 KT in most markets). However, the demand for bio RPOs is expected to grow as tire companies increasingly adopt bio RPOs to meet their sustainability goals. Kline estimates the market for bio RPOs to grow at a CAGR of more than 5%, almost three times higher than the growth of global RPO demand; however, the growth is from a small base. Many RPO suppliers are also expected to launch bio RPOs to meet this growing demand. For example, Nynas recently launched Nytex Bio 6200, a bio-based RPO for tire manufacturers. And H&R launched the Pionier TP 130 range, based on oil seed derivatives.
Secondly, RPO market integrating into a one global market is another trend; however, the process is slow. It is important to understand that the RPO market is a regional market, with each region having different product mixes and dynamics. For example, the United States is primarily a naphthenic and paraffinic RPO market, while Asia and Europe are mainly aromatic markets. Even Asia and Europe are different, since TDAE is the leading RPO in Europe, while DAE is the leading RPO in Asia. This is due to a ban on DAE in the European Union that led to the growing demand for DAE substitutes. Since TDAE is the best available substitute for DAE, most of the European market shifted to TDAE. In Asia, tire manufacturers exporting tires to Europe also started using DAE substitutes such as TDAE for manufacturing tires that were exported to Europe. However, they continued to use DAE only for domestic markets. This created a distortion in the market, as TDAE became the leading RPO in Europe, while DAE remained the leading RPO in Asia. This situation is expected to change, as tire manufacturers believe that some countries, such as Malaysia and Thailand, may issue regulations similar to the European Union’s to ban or restrict the usage of DAE in favor of lower PAH oils. This could reduce the distortion in the market; however, the impact will be limited as the two leading Asian markets for DAE – China and India – do not intend to bring in any regulations banning or restricting DAE. Nevertheless, this will help reduce the distortion in the market.
Furthermore, demand of Group I basestocks is declining globally, leading to the closure or upgrade of Group I basestock refineries. Aromatic RPOs are produced from extracts which, in turn, are produced as a byproduct in Group I basestock refineries. As a result, availability of extracts and, thus, aromatic RPOs is expected to become an issue in the mid- to long-term. This is forcing tire and rubber goods manufacturers to look for alternatives and is expected to drive the demand for naphthenic-blended and paraffinic RPOs. Already, some tire manufacturers were shifting toward naphthenic RPOs, as these RPOs have good performance and availability.
Based on the above trends, Kline estimates the global RPO market to grow at a CAGR of around 1.8% during 2018-2028, led by the Asian market, which is expected to grow at a CAGR of 2.7%.
Against this backdrop, Global Rubber Process Oils: Market Analysis and Opportunities explores market opportunities for rubber process oils.