Compounding issues: Hexpol's Gary Moore discusses major market shifts

AKRON—Less than a year into his position as CEO and president of Hexpol Compounding Americas, and Gary Moore arguably has seen more market fluctuations than during his first 15 years with the company combined.

3M is pulling out of PFAS materials altogether, and that has created waves in the global polymer market. FKMs remain a major source of business for Hexpol, as they do for many global custom compounders.

"If you have not started developing an alternative for a 3M polymer now, you are already too late," Moore told Rubber News.

Sustainability and the amount of total polymer that ultimately will be part of an electric vehicle are top-of-mind for investors. Renewable materials will continue to increase in demand, Moore said, and the Scope 1-3 emission standards factor into all facets of manufacturing.

And supply chains, still chaotic, continue to jump from manageable to complete gridlock with little warning.

Moore spoke about these prescient trends at the recent Rubber in Automotive Conference, organized by Rubber News at the Hilton Akron Fairlawn.

"When you talk about making a material difference, that is really what Hexpol is focused on," Moore said. "That, and the business risks and trends associated with making a material difference.

"When you are making a compound and you are mixing ingredients, if you do not have every necessary ingredient you cannot mix the compound. And that is a major risk to us and a major risk to our customers."

Moore already has put his stamp on the company as HCA undertakes a major restructuring, transitioning to a market-centric tack by product and a regional philosophy by supply chain.

The ultimate intent is to be closer to customers, but there are other benefits as well.

"I would say that we, at Hexpol, are working toward operational excellence through standardization," Moore said. "We are a decentralized company, but highly coordinated. We strive to be better than we were the day before.

"Our objective is to be the supplier of choice within the markets we serve."

Within HCA, those markets include automotive at about 40 percent (weatherstripping, air and fluid management, and NVH); industrial at about 30 percent (wire and cable, architectural sealing and highway construction); and specialty compounds at about 30 percent (water management and oil and gas).

Hexpol, based in Malmo, Sweden, has about 5,000 employees and sees about $3 billion in annual net sales.

HCA, which comprises about 55 percent of overall group sales, maintains 16 business units, with three in Mexico and 13 in the U.S.

Hexpol Group is the largest compounder in the world, and HCA is the largest in North America, according to the 2023 Rubber News custom compounder rankings.

While Moore noted that demand in automotive is expected to grow between 5 and 10 percent this year over 2022, sustainability costs—and their importance to the environment, without greenwashing results—are expected to increase year-over-year.

And they can be difficult to manage.

"The first questions investors ask are, 'What are you doing about sustainability?' and, 'How much more polymer content is needed for the EV market?' " Moore said.

Hexpol follows its end markets in its compounding efforts, whether in rubber, silicone, thermoplastic elastomers or thermoplastic vulcanizates.

"What has changed over time is the use of the word 'polymer,' " Moore said. "There is the thermoset world and the TPE world. And we had to look at these market changes and adapt our acquisition strategy accordingly."

Inherent in this market movement is sustainability—in product manufacturing, of course, but also in reporting, Moore said.

With a goal of a 75-percent reduction in CO2 emissions by 2025, Hexpol has been reporting sustainability efforts since 2006.

Whereas a single sheet of paper was required for the report in the past, EPA regulations have become piano-wire stringent.

"The reports are much more demanding, much more time-consuming today," Moore told the Rubber in Automotive audience. "New employees are actually hired to handle sustainability.

"And we take it very seriously. We are looking at what part we can impact right now ... and there are certain things we can address in the future."

Moore said HCA "is not standing still" in these efforts.

The company has invested between $18 million and $20 million in capital improvements, from new manufacturing equipment to human resources and automation, the latter in light of the difficult labor market.

"We have those constraints like anyone else—and we also are putting money into investments in sustainability," he said. "And these are heavy investments per year."

From a materials standpoint, recycled content will be favored moving forward.

"We are visibly progressing toward recycled content," Moore said. "From a polymer content standpoint on the powertrain, we are starting to gauge and get some feedback on these requirements."

Polymer content per vehicle, on average, is expected to jump from about 13 kilograms to 30 kilograms, Moore said.

"We know this is increasing in the powertrain," he said. "We don't really yet know the increased content totally—we just know we are going to see an increase in the amount of rubbers and polymers.

"Again, lightweighting, cost and sustainability all will be important in these endeavors."

While nitrogen oxide and sulfur oxide emissions are important to rein in, new problems can be created with new technologies like EVs.

"Now, with the greater torque and acceleration, we are seeing an increase in rubber fumes as the weight of these vehicles burns through tires much more quickly," Moore said. "When you address one problem, there is always another problem out there."

Moore added he believes TPVs ultimately will replace EPDM in the EV market.

"EVs are coming and they will be here to stay," he said. "From a Hexpol perspective, we are following the markets. I believe we have a diversified market base as well as diverse targets from a timeline perspective. Some other things we can kick the can down the road a bit in terms of timing.

"But the applications for rubber and TPEs are endless ... and Hexpol is a total service provider."

The pandemic laid bare just how weak supply chains can be, as worker strikes, shipping delays, the use of new and different ports, and a lack of mega-infrastructure to accompany the mega-vessels all have caused problems.

Such anomalies cause great risk to markets, as do the larger, global trends in the compounding world.

"We are going to continue to see these issues," Moore said. "Things, I dare say, might be going well today, but tomorrow they could be different. Our focus is to domesticate where we can.

"We are trying to get shorter and more regional with our supply chains, which actually improves our CO2 footprint."

The $1.2 trillion Bipartisan Infrastructure Act should assist the many industries involved in the EV and construction markets, he added.

"We need it," Moore said. "This is fundamental to getting to the EV stages they are talking about with smart traffic lights and smart infrastructure. From a U.S. standpoint, the country is about 10 years behind where Norway is. And 10 years is more like 15 years in terms of investments. But at least money will be available and is there."

Sustainability targets and goals are only going to increase in regulatory strength and cost.

"From our perspective, the U.S. and its use of fossil fuels will continue to create a problem," Moore said.

"And from an EPA standpoint, if you keep adding on regulations, manufacturing ends up in another country where those regulations do not exist and meeting those thresholds are not needed. Compliance ends up being so mandatory and so regulated that it stops you from doing business in certain areas."

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