Ethylene Propylene Rubber: Multiple Initiatives to Cope with Changes
Click:0    DateTime:Sep.26,2021

Wang Yuying, Fu Qiang

China's ethylene propylene rubber capacity ranks No. 2 in the world. Its import volume declined after the government took anti-dumping measures against EPDM in 2020. Hence, the pattern of supply and demand and the market prices are facing adjustments. Accordingly, enterprises need to enhance their product grades, expand overseas markets, strengthen the combination of "production, sales, research and application", and set reasonable prices.

Anti-dumping measures favor domestic capacities

There are five ethylene propylene rubber producers in China by 2020, with a total production capacity of 395 000 t/a. Jiangsu takes the largest share of 40%; followed by Jilin, 22%; and Shanghai, 19%. Zhejiang and Shaanxi account for 13% and 6%, respectively. China’s ethylene propylene rubber manufacturers and their capacities in 2020 are shown in Table 1.

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Chart 1 shows China’s ethylene propylene rubber capacities, outputs and utilizations from 2015 to 2020.

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Chart 1 China’s ethylene propylene rubber capacities, outputs and   utilizations, 2015-2020

Chart 1 shows that, in spite of the stable capacity, the ethylene propylene rubber outputs have been increasing since 2015, except for a slight decline in 2020 due to the impact of COVID-19.

Imported EPDM rubbers have taken nearly half of the domestic market shares recently and have hampered the development of local EPDM enterprises, which inevitably led to an anti-dumping duty decided by China's State Council Tariff Commission on December 18, 2020, after a year’s investigation. The duty levied on EPDM from the United States, South Korea and the European Union started on December 20, 2020, for a duration of five years. This is favorable to the China’s EPDM industry, promoting the growth of local capacity and production. It is expected that the China’s EPDM rubber output will gradually increase in the next few years.

After three ethylene propylene rubber plants were put into operation in China in 2014 and 2015, the annual capacity reached 370 000 t/a, without any change from 2015 to 2018. In April 2019, Yan'an Energy & Chemical put a new 25 000 t/a line into trial production, bringing the total national capacity to 395 000 t/a. After qualified EPM and EPDM products were seen in August and December 2019, this line was put offline and did not restart until November 26, 2020. If Yan’an can guarantee a stable operation of this 25 000 t/a line, it might consider another 25 000 t/a capacity. However, it is expected that in the next 1-2 years, there would be only one line running. No new capacities are expected in China in 2021. Meanwhile, Shandong Dongying Tongzhou Chemical’s 50 000 t/a ethylene propylene rubber plant construction has been halted for a long time, without a clear anticipation of resumption. Optimistically, China’s ethylene propylene rubber capacity will grow to 470 000 t/a by 2025.

A recovering automobile industry benefits demand

Hit by COVID-19, China’s ethylene propylene rubber apparent consumption fell by 15% YoY to 371 200 tons. Due to the sudden increased tariffs on imports, some end-users started to shift from imports to domestic products, and the market shares of imported cargos in 2020 dropped to below 50% for the first time. The supply and demand pattern quietly changes. 

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EPDM, the main variety of ethylene propylene rubber, has 60% applied to automobile, leaving its production and sales decided by the sales of automobiles. The sales data in 2020 suggests that China's auto market recovered beyond expectations, with annual production and sales reaching 25.225 million units and 25.311 million units, down 2% and 1.9% respectively from 2019. Such good performance of the auto industry is mainly because of the strong support of national and local policies, the efforts of industry players, and the robust recovery of market demand.

There are nevertheless negative factors. Firstly, given the anti-dumping measures, the market speculation atmosphere was high in second half of 2020, and the high quoted prices somewhat dampened the transactions. Secondly, the COVID-19 impacted the international industry chain supply and the certainty of production resumption in China.

So, the increasing market prices, the squeezed downstream profits, and the continuation of COVID-19 have limited the consumption of ethylene propylene rubber.

China Association of Automobile Manufacturers expects that China's auto industry will regain positive growth in 2021, with auto sales expected to exceed 26 million units, an annual growth of 4%; and new energy vehicle sales expected to reach 1.8 million units, an annual growth of 40%. This will be favorable to the development of ethylene propylene rubber industry.

Import in 2020 plummeted

The import and export statistics of EPDM include primary shape ethylene propylene non-conjugated diene rubber (40027010) and other shapes ethylene propylene non-conjugated diene rubber (40027090).  Table 3 shows EPDM rubber import statistics through 2015 to 2020. The import volume of EPDM in 2020 was 189 000 tons, down by 19.33% from 2019. The monthly import of EPDM in 2020 is shown in Chart 2.

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Chart 2 EPDM import trend, Jan-Dec 2020

China's EPDM import fell sharply in 2020. The first reason is that the sluggish downstream demand due to low operating rate in the first half of the year restricted importers’ enthusiasm. And the second reason is the anti-dumping measures issued at the end of October pushed up the import cost largely, forcing downstream rubber products enterprises to switch to local alternative grades.

China exported 13 600 tons of EPDM in 2020, an increase of 9.68% YoY. The monthly export figure is shown in Chart 3, indicating that the export volume in December 2020 was the highest, reaching 2 700 tons, up by 78.26% from the same period of 2019. The main reason of such increase was the demand growth from South Korea. In addition, on March 17, 2020, the Ministry of Finance and the State Administration of Taxation issued the Announcement on Increasing the Export Tax Refund Rate of Some Products, and the primary shape ethylene propylene non-conjugated diolefin rubber (40027010) is included, having its export tax rebate rate increased to 13%. The Announcement helped to improve the export enthusiasm of ethylene propylene rubber manufacturers.

China’s ethylene propylene rubber production is expected for captive use mainly in 2021, with export volume in the range of 11 000 tons to 15 000 tons. 

According to the customs import tariff number classification, the primary shape EPM is under the primary shape ethylene - propylene copolymer (ethylene monomer unit content greater than propylene monomer unit) (39019010). Under this tariff number, there are also modified polyethylene (such as chlorinated polyethylene and chlorosulfonated polyethylene), POE polyolefin elastomer and impact modifier (ethylene content greater than 55%). In 2020, the import volume of primary shape ethylene - propylene copolymer, according to customs statistics, was 71 800 tons, with 18 000 tons primary shape EPM.

Table 4 shows EPDM import origins statistics in 2020.

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China is a net importer of EPDM with a small amount of export. The top three export markets in 2020 were South Korea (5 200 tons), Thailand (1 400 tons), and Singapore (1 200 tons), accounting for 38.12%, 10.15% and 8.92% respectively, remained flat with 2019.

Future development 

1. Development trend

(1) Serialized, high-end, environmentally friendly and customized products 

The middle and low-end ethylene propylene rubber capacity is surplus, and market competition is intensifying.  However, the development of high-end products lags behind with short supply. In addition, with tightened environmental protection policies and diversified downstream demand, new products are developing to be serialized, high-end, eco-friendly and customized. The development of such new products may enhance the efficiency and the competitive strength of enterprises, hence conducive to the healthy and sustainable development of the industry.

(2) Metallocene catalysis is an important development direction for ethylene propylene rubber technology

Metallocene catalytic technology brings high polymerization activity, low catalyst dosage, uniform polymer structure and excellent product performance. The microstructure of polymer can be regulated in a wide range, so that products with new chain structure and different applications can be synthesized, thus being an important development direction of ethylene propylene rubber solution route. Meanwhile, non-metallocene single point (also called single active center) with better performance will become another hot spot for future research and development.

(3) The rapid development of high-tech pushes the ethylene propylene rubber forward

The traditional EPDM has been impacted by other cheaper elastomers with the rapid development of technology. For example, thermoplastic elastomers like EPDM-based olefin elastomers (TPO) and thermoplastic vulcanizates (TPV) are substituting EPDM in automotive and polymer modification. As a typical representative of a new generation of rubber products, EPDM/PP TPV made by dynamic vulcanization has advantages over traditional rubber in terms of production process and performance, and has less impact on the environment, which is in line with the green concept. Also, polyolefin elastomer vinyl copolymer (POE), with its excellent processing performance and price advantage, has become a strong competitor of EPDM in the field of polymer modification. The emergence of substitutes pushes ethylene propylene rubber manufacturers to strengthen the POE research and development so as to develop new rubber varieties to adapt to new times.

(4) Modification technology broadens the applications of ethylene propylene rubber

The automobile will still be the most important market of EPDM in the following 5-10 years, with polymer modification remaining the second, and oil additives, plastic runways, and wires and cables the third. Despite excellent overall performance, EPDM still cannot meet certain needs due to its flammability and slow vulcanization. Modification technology helps to produce high-performance EPDM overcoming its disadvantages, and its development will focus on high vulcanized ethylene-propylene rubber special material, high flame retardant ethylene-propylene rubber special material, ethylene-propylene rubber/chlorinated polyethylene alloy, and ethylene-propylene rubber /polypropylene alloy.

2. Suggestions

Affected by the anti-dumping measurement, China’s ethylene propylene rubber market will undergo great fluctuations in 2021. It is recommended that domestic ethylene propylene rubber companies to: 

(1) Strengthen the advantageous products

Speed up the quality improvement and consumption reduction for existing grades, stabilize market share, target potential customers, expand sales channels, and effectively increase market shares. To be high-end and differentiated to avoid homogenous competition and achieve sustainable development.

(2) Expand export markets 

Develop strategic export policies, adjust pricing measures, expand foreign customers, and relieve production and sales pressure on the basis of current export situation.

(3) Integrate production, sales, research and application to establish a technology-business system

Give full play to the research and development strength of science and technology, build a communication platform with domestic professional associations and research institutions, understand the cutting-edge technologies, develop new grades, and promote the industrialization process.

(4) Set reasonable prices according to the market situation

    The market prices of ethylene propylene rubber fluctuated in a large band after the final ruling of the anti-dumping investigation. Hence, the sales prices need to be adjusted so as to suit market.