The Silicone Shortage Explained
There isn’t a simple explanation for the global shortage of silicone rubber. It’s about changes in supply and demand, pandemic-related problems with shipping/logistics, manpower, and raw materials. If you’re concerned about where the market is headed, it might help to consider the causes of the current shortage and some long-term solutions. We’ll also look at what you can do now to avoid stock-outs, excessive lead times, and surprise price increases.
Demand: Demand is much higher for all types of silicone products than one year ago. Demand started to increase in 4Q 2020 as global economies opened. Even when parts of the world were hit with second and third waves of Covid, economies did not shut down as they did in 1Q and 2Q 2020. As of today, demand is the same or slightly higher than prior to the pandemic.
Supply: In 1Q and 2Q 2020, most raw material suppliers saw orders/demand drop between 15-40%. When this happened, companies reduced their inventories to very low levels to conserve cash since no one knew how long the pandemic was going to last. Once demand started to pick up, turning on production was not that easy.
Manpower: People were furloughed or laid off in 1Q & 2Q. When demand started to pick up, companies were not able to get the manpower needed to produce product to meet demand. Covid-19 quarantine protocols had a significant impact on manpower. Many companies reported up to 5-10% of the workforce were in mandatory quarantine over a 2-4 month period. In addition, additional federal unemployment assistance made it less attractive to come back to work.
Logistics: Many containers and cargo ships were removed from the supply chain due to lack of demand and the logistics companies saw the same manpower/supply issues facing manufacturers, thus preventing them from getting these assets back into action quickly enough. Manpower shortages affected the ports as there were not enough longshoreman to offload containers once they arrived at the port.
Pricing: A very undesired outcome of the above is pricing pressure. This is happening not only to silicones but with just about every product/commodity produced, including food.
Silicone producers have all announced price increases in the range of 5-25% and the industry anticipates more increases coming later in 2021.
We believe the shortage and pricing pressures will continue to persist for the next 6-12 months. The major silicone producers Dow, Wacker Chemie A.G., Momentive, Elkem, and Shin-Etsu Chemical Co. Ltd. are working on increasing output, but it will take time. Even when additional capacity comes on-line, increased raw material costs and wages will keep pricing high.
If your current silicone supplier is limiting your purchases, it’s time to look for other qualified sourcing options. Here at SSP, we have been working with all the major silicone suppliers to ensure we have qualified silicone rubber available at the best prices possible. It’s more important than ever to communicate regularly with your suppliers about pricing, availability, and lead times.
Specialty Silicone Products (SSP) welcomes these conversations and invites you to contact us on-line or to email Dominic Testo, Business Development Manager. Some industry experts are predicting supply chain relief will come sometime in 2022 but why wait to find a reliable source of quality medical, industrial, aerospace, military, or EMI silicones?