By Thomas Larson, ProcurementIQ Analyst
Now more than ever, companies are being pressured to reduce their environmental footprint. That pressure is coming from not only consumers, who want to know that their purchasing decisions are not counterproductive to environmental health, but also regulatory agencies at the federal, state and municipal levels. ProcurementIQ has already discussed the introduction of chemical bans that have affected the plastics market.
Companies considering other solutions to plastic know that altering supply chains and switching to an alternative input material is sometimes easier said than done. Even after adjusting any internal processes to accommodate for a substitute material, buyers may realize the grass is not always greener. This has become apparent in the silicone market, which many buyers have turned to as an alternative to more traditional plastics.
Silicone as an Alternative
Like traditional plastics, silicone is a synthetic polymer and it has many physical qualities that mirror plastic. Silicone is produced from silica, rather than petroleum, that reacts with hydrocarbons to create a resin. It appears in thousands of products including those used in construction, transportation, health care, personal care and electronics.
As a result of the differences in input materials and less reliance on fossil fuels, silicone is oftentimes framed as a more environmentally-friendly, nontoxic input material that offers the same versatility as other petroleum-based synthetic resins. Buyers should note that silicone resins differ in their purity level, thereby ranging from commodities to specialized resins.
Silicone Supply Chain
While seemingly good in practice, silicone has recently been a less than ideal input material. Manufacturers have tightened their supply, thereby making it more difficult for buyers to procure silicone. For those that have been able to secure supply, they have seen dramatic price increases, sometimes as much as 15% higher than expected.
Supply has been constrained for multiple reasons. Demand for silicone has increased globally, but more importantly, demand has increased in China due to economic expansion. China is largely considered the leading source for silicone and Chinese suppliers have directed supplies first towards buyers within their borders, instead of exporting to foreign buyers. Moreover, Chinese regulations directed at improving air quality in the country, as well as tariffs, have increased the cost of silicone. Nonetheless, in a public post, one CEO described the price increases as surcharges, thus indicating the price hikes are temporary and will be adjusted once the market conditions permit.
What Buyers Can Do
In spite of the market working against their favor, buyers still have options to mitigate risk in the silicone market. Firstly, buyers should recognize that the lead time for purchasing silicone is likely going to be lengthier than other synthetic resins. On average, Synthetic Resins have a short lead time due to a low level of specialization, meaning purchases can usually be completed inside of one month. Given the supply constraints for silicone, buyers should anticipate longer lead times. Therefore, buyers would be best served by moving up their sourcing initiatives to compensate and avoid a total supply outage.
Buyers should also consider entering into long-term purchasing agreements and/or bulk orders. Many suppliers are currently quoted as saying they are fulfilling orders for their long-term clients first. Moreover, buyers should consider bulk orders, as suppliers may be willing to favor buyers that give them a greater volume of business. Lastly, buyers should consider sourcing from multiple suppliers in order to spread out the risk. As a result, buyers are at a reduced risk of having access to silicone totally cut off.
Overall, buyers should use these changes to seek out a collaborative relationship with their silicone vendors, rather than a transactional relationship that is typical in the synthetic resins market. In a collaborative relationship, buyers and suppliers can work together to establish a mutually beneficial relationship.
Buyers should also be proactive and stay up to date on how recent tariffs could affect the costs of plastics, which may further constrain the silicone supply chain as buyers continue to seek plastic alternatives.
Having access to reliable research from ProcurementIQ can help you stay ahead of market adjustments and supply constraints like those the silicone market is experiencing.
Understanding recent and forecast price trends, identifying major suppliers and knowing which questions to ask during negotiations will give you leverage to get the best deals possible. Interested in reading our comprehensive report on Synthetic Resins? Contact us today for a free trial!