Rubber market to worsen first before recovering around 2020: Lanxess

German synthetic rubber producer Lanxess is pessimistic about the near term outlook for the rubber market, but foresees the situation to turn for the better in five years.

"For the next two to three years, we clearly see that there will be challenges in the industry and for that reason we are not producing here in Singapore at nameplate capacity," said its chairman, Matthias Zachert, in an interview.

The group will therefore only gradually ramp up the production of its new neodymium butadiene rubber (Nd-BR) plant in Singapore, which has a capacity of 140,000 tonnes. Mr Zachert was in town for the opening of the 200 million-euro (S$314 million) plant, which represents one of its largest investments globally.

The bearish rubber market will also be exacerbated by the slowdown in China, though he cautioned that this must be viewed in perspective. "The Chinese economy is today the second biggest economy in the world...you cannot expect that it will always grow by 7-10 per cent."

Even at more modest rates of 4-5 per cent, China will grow at a faster clip than Europe and North America, he said. This will also be "very healthy" structurally for the country.

In the mid to long term, however, demand for rubber should improve, in line with the tyre industry which benefits from the megatrends of mobility and urbanisation, said Mr Zachert. In particular, the increasing demand for high performance tyres which reduce fuel consumption will put Lanxess in good stead.

Lower oil prices, too, will incentivise consumers to clock more mileage, leading to a higher replacement rate for tyres, he noted.

"In 2020, we think the situation will improve and then we will start to accelerate (production) again."

The investments into the two synthetic rubber plants in Singapore in recent years - amounting to 600 million euros in total - were therefore made with a long term view, he said. "As we are, like Singapore, pursuing a long-term strategy, we live (through) and master short-term challenges."

Meanwhile, the group is exploring an alliance with another firm in the same field to increase the competitiveness of its rubber business. "We are open to horizontal and vertical alliances," said Mr Zachert. "This can be global or regional, but we have not come up with a precise guidance on this. This is something we will communicate once we are really sure how this will pan out, and until then we will keep our lips closed."

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