Industry Profiles

Industrial Rubber Products

• Introduction
• Structure and Performance of the Industry
• Trade
• Technology
• Environmental Issues
• Canada-U.S. Comparison
• Prospects for the Future
• Trade Associations
• Major Firms
• Statistical Tables

Introduction

The rubber products industry comprises three sub-industries: tire and tube, hose and belting, and other rubber products. Industrial rubber products includes hose and belting, and other rubber products, but excludes tires and tubes.

While industrial rubber products are used by virtually all industries, the dominant market is automotive (e.g., hoses, belts, gaskets, weatherstripping, glass encapsulation, air dams and deflectors, and door, window and closure seals). Other important markets include conveyor belts for mining and forestry operations, roll flooring, and consumer products.

All natural rubber used in Canada is imported; it can be extracted from a variety of vegetation, but the most significant source is the rubber tree (Hevea brasiliensis). Synthetic rubbers are produced chemically from petrochemical feedstocks. Bayer (formerly Polysar) is the sole Canadian-based manufacturer of synthetic rubber. The principal synthetic rubbers include styrene-butadiene, butyl, nitrile, isoprene, chloroprene, urethane, polysulfide, silicone and ethylene propylene diene terpolymer (EPDM).

The first step in the production of a rubber product is to blend one or more types of rubber with additives such as carbon black, oil, anti-oxidant, catalyst, plasticizer, pigment, accelerator and filler. The compounded rubber is processed into the desired shape by extrusion, compression moulding, or calendering (which coats a substrate like glass fibre or textile with rubber). Up to this stage, the rubber can be permanently deformed by an applied force. The rubber is then transformed into an elastomer, or material that recovers its original shape once the deforming stress is relieved, through a process known as vulcanization. Vulcanization results in the formation of new chemical bonds that crosslink individual polymer chains and impart the elasticity commonly associated with rubber. In some cases, the moulding and vulcanizing operations are combined in a single step.

In 1998, Statistics Canada began reporting data according to the North American Industrial Classification System (NAICS). Prior to this data was reported on a Standard Industrial Classification (SIC) basis. Statistics Canada has "backcast" data using the NAICS structure, and republished data going back to 1990 that was formerly published on an SIC basis. This conversion from SIC to NAICS may cause some data go show a step-change between 1989 and 1990. Canada-U.S. comparisons will be greatly assisted by the conversion to NAICS because now both countries (plus Mexico) will report industry data on the same basis. The United States implemented NAICS in 1997, but did not backcast. Therefore U.S. data may show a step-change between 1996 and 1997.

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Structure and Performance of the Industry

The industrial rubber products industry in Canada is composed of about 273 establishments, which employed 16 450 people and produced shipments worth $2.7 billion in 2004 (see detailed industry statistics).

Based on 2001 Statistics Canada data, 50% of establishments were in Ontario, 31% in Quebec, 9% in British Columbia, 7% in Prairies, and 3% in Atlantic Canada. On the basis of shipments, the industry is even more concentrated in Ontario, with approximately 68% due to plants in that province.

Figure 1 charts the change in industrial rubber products gross domestic product (GDP) compared with growth in the overall economy and all manufacturing.

Figure 1 - Data table

Raw materials, including packaging, account for about 74% of direct manufacturing costs. Labour and energy represent about 23% and 3%, respectively. Approximately 42% of raw material costs is for natural and synthetic rubber, 29% is for reinforcement (both fibre and metal), 19% is for compounding additives, and the remaining 10% is spent on a wide range of other raw materials.

Figure 2 compares average salaries, and Figure 3 compares shipments per employee, for industrial rubber products and total manufacturing. Shipments per employee remain well below the all manufacturing average, reflecting that the industrial rubber products industry remains labour intensive.

Figure 2 - Data table

Figure 3 - Data table

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Trade

The trade performance of the industry is shown in Figure 4. Imports were valued at $1.7 billion in 2004, and accounted for 55% of the Canadian market. Sixty-seven percent of imports came from the United States. The largest categories of imports were gaskets, washers, hoses, compounded rubber, plates, and belts.

Figure 4 - Data table

Exports were worth $1.3 billion in 2004, representing 48% of the value of shipments. Ninety-five percent of exports went to the United States. The principal exports were gaskets, washers, compounded rubber, weatherstripping, hoses, and belts - largely the same products that are imported in high volumes.

This industry is now essentially fully rationalized on a North American basis. Companies with plants in both Canada and the United States have shifted manufacturing mandates so that individual plants produce a narrower range of products, but in higher volumes so as to satisfy demand within a larger geographic market.

As of January 1, 1998, the tariffs on all rubber products imported into Canada from the United States had been eliminated. Under the North American Free Trade Agreement (NAFTA), tariffs on rubber products shipped between Canada and Mexico all dropped to zero by January 1, 2003.

On a broader front, many countries, including Canada, participated in the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT). As a result of these negotiations, Canadian Most Favoured Nation (MFN) import tariffs on industrial rubber products now range from free to 9.5%, depending upon the commodity.

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Technology

The industry has ready access to new raw materials and generally uses modern equipment. Limited research and development (R&D) is performed in Canada, partly because some of the larger Canadian companies supplying the automotive industry have located their R&D; centres in Detroit where the Big Three and the Japanese transplants have their platform design centres. Despite the low level of domestic R&D;, new technology is available to Canadian subsidiaries through the corporate network. Many of the smaller rubber products manufacturers rely heavily on raw material suppliers, intermediate compounders, or machinery suppliers for technical assistance related to new product development. Manufacturers of specialty products must spend more than the industry average on R&D in order to retain the performance advantage that differentiates their products in the market.

Developments in thermoplastic elastomer technology offer the potential for significant improvements in productivity and product quality. Thermoplastic elastomers exhibit the elasticity associated with rubber, but under appropriate conditions, can be processed like plastics. This characteristic permits the use of plastics processing technology to produce elastomeric products, offering significant cost and efficiency advantages over traditional rubber processing methods. These materials are based either on block copolymers that possess distinct elastomeric and thermoplastic regions (domains), or on blends of separate elastomeric and thermoplastic polymers. The use of thermoplastic elastomers is expected to grow much faster than the market for industrial rubber products overall. Applications for which thermoplastic elastomers are replacing thermoset rubbers include seals, gaskets, hoses, flexible tubing, coated fabrics, boots on steering columns, sheeting, weatherstripping, conveyor belting, and air ducts in automobiles.

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Environmental Issues

Management of post-consumer rubber waste continues to be an important issue for the rubber industry. While most of the attention has focussed on scrap tires, all large-volume rubber products will ultimately face the problem of dealing with waste and discarded material. Rubber products are more difficult to recycle than plastics because they cannot be reprocessed by the simple application of heat and pressure. Recycling processes are based on mechanical disaggregation of the article, separation and recovery of the rubber component, and incorporation of the resultant "crumb" rubber into another manufacturing process. Some of these processes are designed to operate at ambient temperature, and others are designed to function at very low (cryogenic) temperatures at which the rubber becomes brittle and fractures. Some of the uses of recycled rubber include: 

• a modifier in asphalt for road paving and roofing applications
• other rubber products like mats, carpet underlay, sport surfaces, soil conditioners, leachate liners.

Another large consumer of scrap tires, more so in the United States, is tire-derived fuel (TDF). Tires have a calorific value similar to coal, and thus can partially replace coal in high energy consuming applications such as cement kilns and power plant boilers. The use of TDF in incineration applications has not been as common in Canada, largely due to environmental policies that have tended to limit its use as a fuel substitute.

Pyrolysis is another form of high temperature conversion. In pyrolysis, the rubber is decomposed at high temperatures in the absence of oxygen. This leads to the formation of a broad range of chemical components which can then be refined and used a chemical feedstocks for other processes. Pyrolysis processes are still experimental for the most part, and have not yet proven themselves to be commercially viable.

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Canada - US Comparison

The value of shipments per employee (adjusted to constant Canadian dollars) is higher in the U.S. industry than in the Canadian industry (Figure 5), although this gap may be closing. Part of this difference can be attributed to the presence of larger-scale plants in the United States. A large portion of the Canadian industry is composed of subsidiary operations of multinational firms. These firms had originally established plants in Canada largely because of the high Canadian tariffs on imported rubber products, and thus were scaled to this market. With North American product rationalization resulting from the FTA, these multinational plants now tend to serve North American markets, but in most cases these are still constrained from producing commodity products by virtue of their lack of size, and tend instead to focus on niche markets.

Figure 5 - Data table

Average salaries in the United States (converted to constant Canadian dollars) have also been consistently higher than those in Canada (Figure 6).

Figure 6 - Data table

Gross margins [defined as (value added - production wages)/shipments] are used as a crude measure of profitability for the industry in the two countries in Figure 7. The U.S. industry has performed better than the Canadian industry over the short period for which comparable data is available.

Figure 7 - Data table

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Prospects for the future

The Canadian industry consists of a mixture of subsidiaries of multinational companies and Canadian owned and operated firms. The industry is operating at close to full capacity, so future growth will require capital investment in the form of either plant expansions or new plant construction.

The North American rationalization of the industrial rubber products industry is now largely complete. The challenges for subsidiaries are to continue to secure product mandates that will allow Canadian plants to utilize their capacity to supply North American or world markets from a Canadian base, and to convince parent companies to continue to make the investments in Canada that are necessary in order to keep pace with evolving technology. Driven by the value of the Canadian dollar and Canada’s access to NAFTA markets, multinationals are making investments to expand capacity and modernize process technology in Canada. However, the much larger investments in new plant facilities are being made in the United States because, it is at least perceived, that Canadian sites are unable to match the incentives offered by U.S. states and municipalities.

For Canadian-owned firms, which often tend to be in the small and medium-sized category, the challenge is to continue to manufacture products which derive their competitiveness from a performance advantage, or which target niche markets. These companies must continue to invest in R&D related to product and process technology in order to sustain their competitive advantage, and also must continue to expand into export markets in order to grow.

For further information, please contact:

John Margeson
Industry Canada
Automotive and Industrial Materials Branch
235 Queen Street
Ottawa, Ontario K1A 0H5
Tel.: (613) 954-3016
Fax: (613) 952-8088
E-mail: margeson.john@ic.gc.ca

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Trade Associations

Rubber Association of Canada
2000 Argentia Rd., Plaza 4, Suite 250
Mississauga, Ontario L5N 1W1
Tel.: (905) 814-1714
Fax: (905) 814-1085
E-mail: glenn@rubberassociation.ca
Web site: http://www.rubberassociation.ca

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