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Key risks for sustainable tyre business

David-ShawSustainability in the tyre industry is a complex business. There is no single way of tackling a range of complex issues. Balancing the carbon sequestration effects of natural rubber against the fuel efficiency of complex solution-SBR compounds is not straightforward. For tyre makers — who have to build these and many other factors into their product design and manufacture in an effort to ensure a sustainable future for the business — the task is even more complex. If this were not enough, we are now seeing vehicle makers such as BMW and Ford applying pressure on their suppliers to demonstrate full traceability of materials, components and parts. This is challenging in any supply chain, but where natural rubber is concerned, the level of work involved is magnified by the complex nature of the relationships between growers, tappers, collectors, wholesalers, agents and processors. Set out in this way, the challenge of sustainability appears to involve nothing but problems, headaches and extra expense. It is no wonder that some in our industry think of sustainability as being a rather expensive luxury which is favoured by the advertising community, those who write the marketing messages and some of the less focussed members of management. In the hardcore technical world of production maintenance and compound development, the engineers have always been under pressure to cut costs and improve productivity. These rather strange new materials never seem to help the compound. Instead they seem to add cost and time to the mix; not to mention the development time. A different way of thinking might see that developing mixing techniques for ultra-high molecular weight butadiene rubber will maintain the competitive edge of your employer and permit them to charge premium prices for the tyre, because the products made using the new materials will offer much fuel economy thanks to the new mixing technique. Sustainability is not just about the environment. Sustainability is about ensuring the corporate entity has a business model which will continue to generate profits for the foreseeable future, even when traditional materials go short and energy prices rocket. Sustainability is about managing the risks which threaten that profitable future. In the case of the tyre industry there many risks to future profitability. These might include brand strength, change in distribution channels, the impact of labels and the strength of the competition. Most of these can be managed through internal activities, given the right mind-set among management.

One unmanaged risk – butadiene

However, there are two major risk areas to which every tyre maker is heavily exposed, yet for which there is almost no risk management activity. Few tyre makers outside the top-ten – and not even all of those — have policies in place to manage these two risks. The first is the potential shortage of butadiene. As the world moves away from crude oil and the naphtha it produces as the prime source of energy towards shale gas, there will be less butadiene around. The vast majority of all butadiene is used in the manufacture of rubber. This reduction in butadiene availability is happening at exactly the same time as demand for tyres is set to boom in India as well as China, Russia and Brazil. But not just these countries – Mexico, Indonesia, Nigeria and Turkey are all queuing up behind to increase their economic activity. Butadiene has always been produced as a by-product of ethylene produced in naphtha crackers. Nowadays we are seeing increasing activity in the area of on-purpose production of butadiene either through adapting new petrochemical processes, or through bio-sourcing such as the projects noted in the table below. By David Shaw, Tyre Industry Research (Full text in February-March 2014 issue of PTA)

Key risks for sustainable tyre business

Sustainability in the tyre industry is a complex business. There is no single way of tackling a range of complex issues. Balancing the carbon sequestration effects of natural rubber against the fuel efficiency of complex solution-SBR compounds is not straightforward.

For tyre makers — who have to build these and many other factors into their product design and manufacture in an effort to ensure a sustainable future for the business — the task is even more complex.

If this were not enough, we are now seeing vehicle makers such as BMW and Ford applying pressure on their suppliers to demonstrate full traceability of materials, components and parts.

This is challenging in any supply chain, but where natural rubber is concerned, the level of work involved is magnified by the complex nature of the relationships between growers, tappers, collectors, wholesalers, agents and processors.

Set out in this way, the challenge of sustainability appears to involve nothing but problems, headaches and extra expense.

It is no wonder that some in our industry think of sustainability as being a rather expensive luxury which is favoured by the advertising community, those who write the marketing messages and some of the less focussed members of management.

In the hardcore technical world of production maintenance and compound development, the engineers have always been under pressure to cut costs and improve productivity. These rather strange new materials never seem to help the compound. Instead they seem to add cost and time to the mix; not to mention the development time.

A different way of thinking might see that developing mixing techniques for ultra-high molecular weight butadiene rubber will maintain the competitive edge of your employer and permit them to charge premium prices for the tyre, because the products made using the new materials will offer much fuel economy thanks to the new mixing technique.

Sustainability is not just about the environment. Sustainability is about ensuring the corporate entity has a business model which will continue to generate profits for the foreseeable future, even when traditional materials go short and energy prices rocket.

Sustainability is about managing the risks which threaten that profitable future.

In the case of the tyre industry there many  risks to future profitability. These might include brand strength, change in distribution channels, the impact of labels and the strength of the competition. Most of these can be managed through internal activities, given the right mind-set among management.

One unmanaged risk – butadiene

However, there are two major risk areas to which every tyre maker is heavily exposed, yet for which there is almost no risk management activity. Few tyre makers outside the top-ten – and not even all of those — have policies in place to manage these two risks.

The first is the potential shortage of butadiene. As the world moves away from crude oil and the naphtha it produces as the prime source of energy towards shale gas, there will be less butadiene around.

The vast majority of all butadiene is used in the manufacture of rubber. This reduction in butadiene availability is happening at exactly the same time as demand for tyres is set to boom in India as well as China, Russia and Brazil. But not just these countries – Mexico, Indonesia, Nigeria and Turkey are all queuing up behind to increase their economic activity.

Butadiene has always been produced as a by-product of ethylene produced in naphtha crackers. Nowadays we are seeing increasing activity in the area of on-purpose production of butadiene either through adapting new petrochemical processes, or through bio-sourcing such as the projects noted in the table below.

By David Shaw, Tyre Industry Research

(Full text in February-March 2014 issue of PTA)

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