Rubber industry faces cost pressures, supply shortages

17th February 2012 By: Nomvelo Buthelezi

The South African rubber extrusions market is facing many challenges, including significant cost pressures, reports manufacturer Hudson Rubber.

MD Daniel Scott tells Engineering News that the local business environment has changed dramatically since the years leading up to the economic downturn of 2008/9.

“Competition in the industry has intensified, with a host of new players entering all spheres of the extrusion market. These include local businesses that use lower-cost Chinese equipment and people distributing imported products, mostly from China and India.

“This has necessitated more of a focus on quality and consistency than ever before, as we now find this to be our most important differentiator,” he says.

Further, he states, delays in the awarding of government contracts for major infrastructure projects have resulted in many of the company’s customers being hesitant to invest in the resources necessary to deliver on these projects.

However, Scott points out that this situation seems to have improved in the latter half of 2011, with several significant tenders having been awarded.

Another challenge impacting on the domestic rubber extrusions sector is cost inflation.

“Both direct material and labour costs, as well as administered costs, such as electricity, fuel and steel, have spiralled higher over the past 12 months,” says Scott.

He adds that all Hudson Rubber’s major materials are oil-derived imports and that the rand:dollar exchange rate and the oil price are key to the company’s cost levels.

The exchange rate worsened 27% from R6.60 to the dollar in May to R8.35 to the dollar in November 2011, before firming slightly to around R8 to the dollar in mid-January.

“The six-month future is about R8.20 to the dollar, so the traders are betting that it will come off further during the year. “The oil price has remained stable at around the $110/bl mark over the same period, despite a brief respite in late September,” he says.

In addition, labour costs are also increasing sharply with double-digit wage increases being awarded across most unionised industries in South Africa.

“This does not come with an increase in productivity and most companies are hard-pressed to pass those costs on to their customers, who have their own wage increases to deal with,” he notes.

Electricity increases of 25% last year and a similar increase on the cards for this year are also impacting on the sector.

Hudson Rubber was also affected by electricity supply disruptions, which cost it four workdays in the first half of 2011.

Despite challenging market conditions, the company con- tinues to grow and Scott remains optimistic about the future, owing to the company’s investment in technology and people.

The company believes that, by training and investing in its people, it is able to improve its labour efficiencies and realise a host of other benefits, such as reduced maintenance costs.

“We believe the key to the long-term competitiveness of the industry is its people. Tool-making is a problem in the industry, and we are currently considering getting involved in the National Tooling Initiative to build capacity in that area.

“We have been involved in rubber technology in South Africa since the beginning and have trained a large number of technologists in the country. We work closely with lecturer Dave Wardle and Rubber Association of South Africa cofounder Dave Ransom in this regard,” Scott tells Engineering News.

Supply Shortages
Meanwhile, Scott notes that global supply of certain synthetic rubbers became extremely tight in 2011, owing to record growth in Asian automotive demand, as well as supply-side constraints.

The producers are investing in new capacity in various locations; however, none of these will come on stream until 2014.

“The tight supply environment means that technical capability is the key to success, as companies need to adapt quickly to new grades to ensure continued supply of consistent product to customers.

“Our mixing and technical skills put us in a strong position in this challenging environment,” says Scott.

Hudson Rubber is continually improving its product and service offerings, with several initiatives aimed at reducing costs and managing its environmental impact under way.

“We are working towards ISO 14000 with the introduction of recycled rubber products such as mats for the dairy industry. Efficiency has become a business imperative and not just a soft issue, owing to rising input costs,” states Scott.

Hudson Rubber has invested in more efficient vulcanising technology, which significantly reduces its energy, maintenance and scrap costs.

“Our aim is to manage the price increases we are forced to pass on to customers as best we can and to be as efficient as possible,” he explains.

The company is working on a number of organic growth initiatives, but says it remains open to acquisitive growth and is evaluating opportunities in its target high-growth markets at present.

“As a manufacturing company, our main expertise is production. We prefer to form marketing and technology alliances with the leaders in the markets we are interested in,” says Scott.

Hudson Rubber is particularly interested in the mining industry and has established partnerships with technology leaders, with the intention of expanding the contributions of heavy moulding to its revenue stream.

“We are particularly interested in process plant applications, where we work with highly experienced people. “Our rubber technological expertise gives us an edge here, as we are able to custom-design products and materials to a particular mine’s needs.

“Most of our competitors use the same compound, as the scale and controls in their operations do not allow for much customisation. “We can supply a part that you have been getting from another company, but to the exact hardness, material and chemical-resistant variant the customer requires,” he states.

In the attrition grinding space, Hudson Rubber has developed some unique methods for the production of mill-lining components that ensure optimal cross-knitting of rubber at over 2 000 t of pressure.

“As a result, our product delivers superior wear life. With downtime costing a mine upwards of R1-million an hour, quality and design integrity are the biggest priorities in our mining business,” Scott tells Engineering News.