M

MARKET

ECONOMI

TECHNICA ManagementDECISIONSANALYSIS

MIC

CAL

Robert Eller Associates LLCCONSULTANTS TO THE PLASTICS AND RUBBER INDUSTRIES

Automotive Supply Chain Shifts/TPE Opportunities

Prepared by:Robert Eller Associates LLCPhone: ++330-670-9566E-mail: bobeller@robertellerassoc.com

Prepared for:Polyolefins 2008Houston, TXFebruary 25 2008

1

E mail: bobeller@robertellerassoc.comwww.robertellerassoc.com

February 25, 2008B/mydox/papers/Polyolefins 022508.ppt

PRESENTATION OUTLINE

• TPE global automotive industry and auto TPEs

A t ti l h i hift d TPE ff t• Automotive supply chain shifts and TPE effects

• TPE material/process technology couple

• Automotive TPE growth targets: - Body/glazing sealsBody/glazing seals- Role for 2-shot molding- The rubber attackThe rubber attack- Talc effects

2

MANAGEMENTDECISIONSANALYSIS

Specialty Thermoplastic Elastomers . . . Markets,Economics, Technology, Intermaterials Competition

ENGINEERINGTPEs

METALLOCENEPLASTOMERS/ELASTOMERS

TPO SEBS

THERMOSETRUBBERS

PVCCOMPOUNDS

TPVs

SUPER-TPVs NANO-FILLERS

RUBBERS COMPOUNDS

A Europe/U.S./Japan Multiclient Industry Analysis

3

Robert Eller Associates, Inc.CONSULTANTS TO THE PLASTICS AND RUBBER INDUSTRIES

MANAGEMENTANALYSIS

MARKET

ECONOMIC

TECHNICAL

DECISIONSANALYSIS

Specialty Thermoplastic Elastomers ... Markets, Economics,Intermaterials Competition, and Industry Structure in China

ENGINEERINGTPEs AND

SUPER-TPVs

METALLOCENEPLASTOMERS/ELASTOMERS

TPOs SEBS

THERMOSETRUBBERS

PVCCOMPOUNDS

TPUsTPVs

RUBBERS COMPOUNDS

A China Multiclient Industry Analysis2006

R b t Ell A i t I

4

Robert Eller Associates, Inc.CONSULTANTS TO THE PLASTICS AND RUBBER INDUSTRIES

TPE FAMILIES . . .CHANGING STRUCTURE, INCREASED INTRA-TPE COMPETITIONC G G S UC U , C S CO O

TPE FAMILIESOBC AND METALLOCENE

PENETRATION

OLEFINIC( TPE )

STYRENIC(SBC ) SUPER-TPVs PVC

TPEOTHERE TPE

PENETRATION

(o-TPEs) (SBCs) SUPER TPVs TPEsE-TPEs

s-TPO o-TPV HYDROGENATED(SEBS SEPS

SBCTPVs

SILICONE OTHER

COPE

COPACOMMODITYTPO

SBS(SEBS, SEPS,

SEEPS)

ISOPRENE-BASEDMID-BLOCKS

TPVs ACRYLATESTPU

TPO

OTHERS

p-TPV(PARTIAL

CROSSLINKED)

f-TPV(FULLY

CROSSLINKED)

r-TPV(a)

5

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008r/mydox/papers/PO 08-TPEfams08.vsdlg/myfiles/Visio/PO 08-TPEfams08.vsd

NOTE: (a) RECYCLATE-BASED TPV

GLOBAL VEHICLE SALES OUTLOOK90

70

80 Annual Growth1990-2000 2.3%2000-2006 2.8%2006 2012 3 8%

50

60

70

M U

nits

2006-2012 3.8% 2012: 85

2007: 71

40

50

eh. S

ls.,

MM

2000:57

20

30Ve

57

0

10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2012

6

1970 1975 1980 1985 1990 1995 2000 2005 2010 2012SOURCE: GENERAL MOTORS

r/mydox/papers/PO 08-Global Ind Vol.xls

EXT. FACTORS: REGIONAL AUTO MKT. GROWTH

VEHICLE SALES HISTORY BY REGION 2000-2007VEHICLE SALES HISTORY BY REGION, 2000 2007

70

806.9% -0.6%3% 1.9% 10.4% 21.3% 13.2% CAGR

50

60

Uni

ts

30

40

h. S

ls.,

MM

20002007

10

20

30

Veh

0

10

Global Tot. Tot. AP Tot. NA Tot. LA China India

7

Europe

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008 b/mydox/papers/PO 08-Global Ind Vol.xls

EXTERNAL FACTORS: FUEL EFFICIENCY

GAS PRICES vs. FUEL EFFICIENCY

$7

$6 14/ l

$5

$6 Taxes AddedCore Gasoline

$6.14/gal

$4

D/G

allo

n

$3.11/gal

$4.24/gal

$2

$3US

21 MPG

36 MPG

$0.40 tx

$2 71

$1.88 tx

$2 36

$4.11 tx

$2 03

31 MPG

$0

$1

$2.71 $2.36 $2.03

8

$0U.S. JAPAN EUROPE

SOURCE: AUTO NATIONr/mydox/papers/PO 08-FUEL.xls

EXTERNAL FACTORS: U.S. VEHICLE POSITIONN. AMERICAN VEHICLES HAVE GAINED WEIGHT, INCREASEDN. AMERICAN VEHICLES HAVE GAINED WEIGHT, INCREASED

HORSEPOWER, AND NOT IMPROVED FUEL EFFICIENCY (MPG)OVER THE LAST 20 YEARS

4,500 300

3,500

4,000

BS.

250

Y R

2 000

2,500

3,000

WEI

GH

T, L

150

200

FFIC

IEN

CY

RSE

POW

ER

1 000

1,500

2,000

VEH

ICLE

W

100

FUEL

EF

OR

HO

R

Vehicle WeightAdj. Fuel EfficiencyHorsepower

0

500

1,000V

0

50Horsepower

9

1987 1997 2007SOURCE: EPA

r/mydox/papers/PO 08-FUEL.xls

TRADE-WEIGHTED VALUE OF U S DOLLAR

EXTERNAL FACTORS: U.S. DOLLAR DECLINETRADE-WEIGHTED VALUE OF U.S DOLLAR

105

110

95

100

, USD

85

90

xch.

Val

ue,

75

80

Ex

70

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

10

March 1973 = 100

SOURCE: FEDERAL RESERVE BOARD r/mydox/papers/PO 08-Global Ind Vol.xls

EXTERNAL FACTORS: U.S. NEW CAR SALES

U S NEW CAR SALES vs NEW HOME SALESU.S. NEW CAR SALES vs. NEW HOME SALES,2003-2007

17.5 1.3

17.0

UN

ITS

1.1

1.2

UN

ITS

16.5

ALE

S, M

M U

0.9

1.0

SLS.

, MM

U

15 5

16.0

EW C

AR

SA

0.7

0.8

NEW

HO

ME

New Car Sales

15.0

15.5N

0.5

0.6

N

New Home Sales

11

'03 '04 '05 '06 '07SOURCES: WARD'S / U.S. CENSUS BUREAU

r/mydox/papers/PO 08-US AUTO SALES vs NEW HOME STARTS.xls

EXTERNAL FACTORS: KEY TRENDS AND DRIVING FORCES

TREND AUTO TPE IMPACT

Dollar weakness - Foreign investment in N. America (state wealth, TPE industry players)

- Increased U.S. exportsStagnant Western auto growth/rapid non-

- Investment in non-Western regions by U.S. Tier 1s- Reluctant U.S. capex by U.S. Tier 1sgrowth/rapid non

Western auto growthReluctant U.S. capex by U.S. Tier 1s

- TPE investment in non-Western regionsRaw material price increase

- Tier 1/TPE compounder profitability squeeze- TPO preference

O ti i t i l ffi i t l ti- Optimize material efficient solutions- Fabrication technology optimization trend (reduced unit

operations, scrap reduction)- Petrochem investment shift to monomer-rich regions

(asset light strategies)(asset light strategies)- TPE supply chain consolidation

Fuel efficiency pressures - U.S. fleet composition shift (favors polyolefin solutions)- Favor light-weighting solutions

12

Continued U.S. domestic OEM share loss

- Japanese/European/Korean Tier 1 and TPE compounder share gain

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008

TPE MARKETPLACE GLOBALIZATION

• TPE investment and technology flows following the globalization of end use markets.

• Most major TPE compounders have established Asia (China) operations.

• A new class of Asian TPE compounders is pemerging (eventually global competitors?/ parallel supply chain).

• China: fastest vehicle production growth region.

13

• Petrodollar shifting regional strengths.

TPE INVESTMENT FOLLOWS MARKETS

JAPAN ASIA -MAINLYCHINA(a)

EASTEUROPE

NORTHAMERICA

WESTEUROPE

TURKEYPERSIANGULF OIL

PRODUCERSPRODUCERSTPE RAW

MATERIALS

PETRODOLLAR OUTFLOW

STRONG FLOW OF CAPITAL INVESTMENT AND TECHNOLOGY

WEAK FLOW OF CAPITAL INVESTMENT AND TECHNOLOGY

FLOW OF TPE COMPOUNDS

PETRODOLLAR INFLOW

14

FLOW OF TPE COMPOUNDS

NOTE: (a) INDIA IS STARTING

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008r/mydox/papers/PO 08-InvTechTPE08.vsd // lg/myfiles/visio/PO 08-InvTechTPE08.vsd

• Automotive supply chain implosion drives

AUTO TPE SUPPLY CHAIN SHIFTS

• Automotive supply chain implosion drives TPE technical innovation

• Forward integration of resin suppliers to compounding (TSRC, Kuraray, Basell, others)

• Expanding property envelopes: SEBS o-• Expanding property envelopes: SEBS, o-TPV, TPO, TPU

• Metallocene polyolefin and ionomer technologies challenge SEBS and o-TPV

• Renewed attack (SEBS and o-TPV) on rubber• Parallel TPE supply chain in ChinaParallel TPE supply chain in China• Commodity vs. specialty TPE sector

divergence G i l f t l

15

• Growing role for talc• Resin capacity shift to monomer-rich regions

S h i f J i i

AUTO TPE SUPPLY CHAIN SHIFTS (Cont'd.)

• Strengthening of Japanese resin companies in N. America and EuropeK TPE li h ll i th• Korean TPE suppliers challenging the incumbents? (e.g., Hyundai EP) TPE compounders broadening product lines• TPE compounders broadening product lines

• Renewed growth of European compounders in N America ($ weakness driver?)in N. America ($ weakness driver?)

• Resin suppliers riding a wave of new reactor technology (direct access to TPE markets)technology (direct access to TPE markets)

• Tier 1s shifting to o-TPE compounding in-house?

16

house?• Enhanced role for TPE masterbatch

AUTO SUPPLY CHAIN EFFECTS

AUTOPLASTIC SUPPLY CHAIN IMPLOSION (N AMERICA)AUTOPLASTIC SUPPLY CHAIN IMPLOSION (N. AMERICA)

PETROCHEM PRICEINCREASES

HARDBALL PURCHASINGPRESSURES

VEHICLE PRICEDECREASES

LEGACY COSTS,LABOR PRESSURES

GLOBALCOMPETITION

OFFSHORECOMPETITION

IMPORTEDCOMPETITORS

RAW MATERIALPRICE INCREASES

FUEL COSTS(PROD. LINE FIT)

RAW MATERIALS COMPOUNDER TIER 1 FABRICATOR ASSEMBLY

PRICECOMMODITIZATION

MATERIALSTECHNOLOGY

LAG

PROCESSTECHNOLOGY

LAG

LEGACYCOSTS

TIER 2, 3SUPPLIERS

MARKETSHARELOSS

OVERCAPACITY

STOCKHOLDERPRESSURES

SHIFT TO MOREATTRACTIVE MARKETS

LAG

ELIMINATION OFEXTRA STEPS

LAG LOSS

PRESSURES PASSED DOWNTHE SUPPLY CHAIN:

PRICING PRESSURES

SUPPLY CHAIN "MANAGEMENT"

DEMAND SLOWDOWN

ELIMINATE/REDUCE THE INEFFICIENCIES:- MULTIPLE STEPS- EXCESSIVE LOGISTICS- SCRAP GENERATION- INEFFICIENT PROCESS TECHNOLOGIES

17

REVISED SPECIFICATIONS

GLOBALIZATION PRESSURES

- SALES/MARKETING COSTS- EXCESS LABOR COSTS- OVER-GLOBALIZATION?

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008re/mydox/papers/PO 08-implosion08.vsd // lg/myfiles/visio/PO 08-implosion08.vsd

AUTOMOTIVE TARGET MARKETS FOR TPEs

METAL SUBSTITUTION- FASCIA- FENDERS

RUBBER SUBSTITUTIONPLASTICS

SUBSTITUTION ADD-ON HOSE TUBE BELTS SEALS GROMMETS,BUSHINGS

FILMS,TUBING

SOFTTOUCH

r/mydox/papers/PO08-AutoTgtMktsTPEs.vsdlg/myfiles/visio/PO08-AutoTgtMktsTPEs.vsdSOURCE: ROBERT ELLER ASSOCIATES LLC, 2008

18

AUTOMOTIVE TPE TARGETS AND THE RUBBER INTERFACEAUTO TPE SYSTEMS TARGETS

BODY/GLAZING SEALS*

BODY SEALS* GLAZING SEALS*

HVAC

OTHERFLAPPER AIR

EXTERIOR

BODY SEALS* GLAZING SEALS*

REAR DECK* FIXED* MOVEABLE*DOORS HOOD*

OTHERFLAPPERDOOR

GASKETS*

AIRDUCTS

INTERIOR(a)

COATEDFABRIC*

FLOORSYSTEMS*

AIRBAGDOORS*

BOOTS/BELLOWS

ELEC

STEERING POWERTRAIN

DOOR*

ELECTRICAL

CABLEJACKET

OTHER

MATS*SKINS*

CARPETBACKING*

ACOUSTIC*

ELEC-TRICAL*R/P

BOOTS*

SPARKPLUG

STEERCOLUMN

BOOT*CVJ

BOOTS*

LIGHTINGGASKETS*

HOSE/TUBE/DUCT(c)

HOSEFLEXMANDREL(b)*

NOTES:* = RUBBER/TPE INTERFACE(a) DOES NOT INCLUDE RIGID-FILLED TPOs USED IN INTERIORS(b) RE-USABLE MANDREL TO MFR HOSE (TPVs COMPETING WITH NYLON)

SEALS/GASKETS*?

PLUGBOOTS*

BOOTSAIR MGT. - DUCT*

TUBEW. WASHEREGRVAC TUBE (NL)

19

(b) RE-USABLE MANDREL TO MFR. HOSE (TPVs COMPETING WITH NYLON)(c) E.G., FUEL, COOLANT, OILS, OTHER HOSE

re/mydox/papers/PO 08-AutoTPETargets08.vsdlg/myfiles/visio/PO 08-AutoTPETargets08.vsdSOURCE: ROBERT ELLER ASSOCIATES LLC, 2008

TPE Grade Name: DuPontTM E-TPVCrank Case Ventilation Hose

20

Material Type: s-TPVProcess: Co-extrusion

Status: ConceptKey Features: Blow-by gas resist.

Product: Fan shroudManufacturer: Sur-FloMaterial Type: TPV (Nexprene)TPE Supplier: Solvay Engineering Polymers

21

pp y g g yNote: Used in Dodge Ram HD pickup

2- color door trim skin on single natural fiber panel substrate

22

Vehicle: BMW 5 SeriesTier 1: Johnson Controls Photo: BMW

BODY/GLAZING SEALS

• Rapid growth

Hi h l t ti l• High volume potential

• In-house compounding vs. merchant supply

• Evolution to in-line compounding?

Systems will be key to TPE penetration• Systems will be key to TPE penetration

• o-TPV vs. SEBS vs. EPDM battleground

• Tier 1 consolidation

23

BODY/GLAZING SEALS: EPDM SUBSTITUTION ACCELERATES

Vehicle: 2007 DCX Dodge RamSupplier: JYCO (compound, profile, design) Material: o-TPV

24

- Little guy scoops the big guys - First o-TPV dynamic body sealSOURCE: JYCO

I d i SEBS k b d d

EXPANDING/SHIFTING PROPERTIES ENVELOPE

• Inroads into SEBS markets by advanced olefin technologies M k h hif b TPE• Market share shift between TPEs - Reactor TPO

Improved metallo plastomers- Improved metallo-plastomers- Dow's InfuseTM OBC

• POEs with high melt strength broadened• POEs with high melt strength, broadened service temperature, low gloss

• POE/branched PPs• POE/branched PPs - Compete with o-TPVs - Profiles/thermoforming

25

Profiles/thermoforming - Enhanced foam properties

INTRA-TPE COMPETITION: ROLE OF IMPROVED POLYOLEFIN TECHNOLOGY

• Broad range of new PO technologies becoming avail.SEBS d TPO d i di t• SEBS and TPO compound ingredients

• POE displacement of EPDM in TPOs almost complete • Will stimulate transparent TPO, elastic fibers, elastic p

films • Versatile molecular architecture control • Still young technologies with broad growth pot’l e g :Still young technologies with broad growth pot l., e.g.,:

- Nano morphology control (clear TPOs, e.g., from Mitsui) L h i b hi t l- Long-chain branching control

• Direct sale to fabricators or compounders?: - Dow - Mitsui Chemical

26

- ExxonMobil - Sumitomo- Borealis - JPP

NEW MATERIALS/FABRICATION COMBINATIONS

• Small part, 2-shot molding started• Shift to large part, 2-shot moldingg p , g

- Competition with thermoformed skins- Evolving to 3-layer (skin/foam/substrate)- Shifts the supply chain

• Co-fabrication (blow, inject, profile extrude)• Increased role for polyolefin foams

- 2-shot injection- Acoustics- Semi-structural applications

Role in all PO constructions

27

- Role in all-PO constructions

NEW TPE FABRICATION TECHNOLOGY:LARGE-PART, 2-SHOT MOLDING CHALLENGES SKINS

CURRENT PROCESS 2-SHOT

COMPOUNDING

S

SUBSTRATERESIN

TPE COMPOUND(CAN BE FOAMABLE)

MAKE SKIN

TRIM SKIN

TRIMMED SKIN

SCRAP SHOT 1

SHOT 2

BACK-FOAM

TRIMMED SKIN

PU FOAMFORMULATION

SUB-STRATE

MOLDSUBSTRATE 3-LAYER

DOOR TRIMOR

TRIM NON-RECYCLABLE SCRAP

DOOR TRIM OR INSTRUMENT PANEL

INSTRUMENTPANEL

ASSEMBLY ASSEMBLY

- LABOR INTENSIVE- HIGH SCRAP- MULTI STEP

- MULTI MATERIAL- NON-RECYCLABLE- DIFFICULT CRAFTSMANSHIP

- LOW LABOR- LOW SCRAP- SINGLE STEP

- 1-2 CLOSELY RELATED MATERIAL FAMILIES- EASILY RECYCLED

28

MULTI STEP DIFFICULT CRAFTSMANSHIP SINGLE STEP EASILY RECYCLED- HIGH CRAFTSMANSHIP

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008r/mydox/papers/PO 08-LgPt2Shot08.vsd // lg/myfiles/Visio/PO 08-LgPt2Shot08.vsd

2-Shot Molded Door Medallion

V hi l D d C lib ('07)

29

Vehicle: Dodge Caliber ('07)Molder: LearMaterial: Thermoplastic Elastomer On PP

LARGE-PART, 2-SHOT, SOFT TOUCH DEVELOPMENT

Part: Instrument Panel UpperPart: Instrument Panel UpperSkin Compound: COPE (Foamed Pibiflex from P Group) Substrate: PBT/ASA (UltradurR S4090IGX from BASF)Injection Machine: Engel

30

Injection Machine: Engel Foam Technology: TrexelSOURCE: ROBERT ELLER ASSOCIATES LLC

LARGE-PART, 2-SHOT, SOFT TOUCH: TRUCK IP UPPER

Part: Truck IP UpperPart: Truck IP UpperStatus: PrototypeSkin Compound: COPE (foamed Pibiflex from P Group) Substrate: PBT/ASA (UltradurR S4090IGX from BASF)

31

Substrate: PBT/ASA (Ultradur S4090IGX from BASF)Molding Machine: Engel Duo Series (for Dolphin process)Tier 1: IAC SOURCES: POLYMOTIVE; ROBERT ELLER ASSOCIATES LLC

TALC EFFECTS

• New micro-talcs broaden the properties envelopeenvelope

• Exterior and interior applications

• For exterior applications:- Europe ahead (front-end modules, e.g.,

BMW X5; hatchback, e.g., Renault Modus)- Could accelerate exterior panel penetration

• Role for masterbatch?

32

BMW X5 Front-end Module Compound: 30% talc-filled TPOCompound: 30% talc filled TPO Molder: Plastic OmniumFiller Type: Jetfine® 3CA (Rio Tinto Minerals) Key Features: Class A finish, zero gap, low temp. (-40ºC) impact,

33

y , g p, p ( ) p ,weight save, high scratch resistance, meets European pedestrian safety requirements

SOURCES: PLASTIC OMNIUM; ROBERT ELLER ASSOCIATES LLC, 2007

TPE vs. TSR PATH TO MARKET

FABRICATORCAPTIVEMIXING

TSR: NEAT TSRSUPPLIER

NEATTSR

MIXING

CUSTOMMIXING

FABRICATOR FABRICATED PARTS

REINFORCEMENTREINFORCEMENT

CAPTIVE COMP'DG.BY NEAT TPE

SUPPLIER PROPRIETARYCOMPOUND

FABRI-CATOR

FABRICATEDPARTS

TPE: NEAT TPESUPPLIER

NEATTPE

INDEPENDENT TPECOMPOUNDER

CAPTIVE COMP'DG.

COMPOUND CATOR

- PLASTIC RESINS- REINFORCEMENT

FABRICATEDSYSTEMS

SOURCE ROBERT ELLER ASSOCIATES LLC 2008

CAPTIVE COMP DG.BY MAJOR

FABRICATORS

REINFORCEMENT- OVERMOLDING

34

r/mydox/papers/PO 08-TPEvsTSRptm08.vsd // lg/myfiles/visio/PO 08-TPEvsTSRptm08.vsd

SOURCE: ROBERT ELLER ASSOCIATES LLC, 2008

SUMMARY

• Rapidly shifting global automotive TPE marketplace and TPE industry structure:

R i l t ti th diff- Regional automotive growth differences - Strong global investment flows - Internationalization of the N American TPE- Internationalization of the N. American TPE

market - Petrodollar effects - China/India TPE compound imports to N.

America and Europe?

• Commoditization of low end TPE compound markets (shifting supplier rankings and target

35

markets (shifting supplier rankings and target markets)

SUMMARY (Cont'd.)

• New technologies driving TPEs deeper into TSR markets: - Body/Glazing Seals - Boots/Bellows- Hose - Coated Fabrics

• Continued profitability pressure from: - Consolidated customer baseConsolidated customer base - Raw material price increases - Global pricing structures - Direct paths to market by resin suppliers - Increased in-house compounding

M t b t h b f b i t

36

- Masterbatch use by fabricators

• Expanding properties envelope

SUMMARY (Cont'd.)

• Expanding properties envelope

• Interface blurring between SEBS and o-TPV:Compo nd form lations- Compound formulations

- Market sector dominance- Product linesProduct lines

• Forward and backward integration changing the TPE supply chainthe TPE supply chain

• Many opportunities for capturing value (via t h)systems approach)

• Global sourcing accelerating

37• Olefin-based TPEs gaining share