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I was told that the felt seals fitted to the ball nut on my ball screw will cause problems and need to be replaced with Teflon seals. Is this correct, if so why was felt used in the first place?
No, this is not correct.
Some ball screw repair companies are of the opinion that all felt wipers are bad because they tend to collect chips and particles more readily than some other materials, which if you think about it, doesn't make sense because that is what the wiper is for, to deter chips and particles from entering the ball nut. Also, felt has a quality that all other wiper materials lack, it has the ability to soak up oil and dispense it throughout the length of the screw. This can be an advantage if the machine is not fitted with an automatic lubricating system or there are other contaminants besides metal to wipe off. There are advantages and disadvantages to all types of wiper, Teflon, plastic polymers, neoprene, bristle and felt. Felt seems to have a bad rap because most often it is bonded to the ball nut and not as easy to replace reliably as some of the other materials.
If there was just one choice then probably Teflon would be it, but to choose it for all applications when there are more efficient alternatives is incorrect.