Rubber Market Burned By Asian Crisis

31 August 1998 00:00  [Source: ICB Americas]

By Alex Tullo

The crisis in Asia and overcapacity are hurting the emulsion styrene-butadiene rubber market, causing some producers to cry foul in response to the prices of imports coming into North America. Other producers are looking at investing in solution-based production, believing that these specialty grades can address market needs while providing a more stable earnings platform.

In synthetic rubber markets, the Asian crisis has had a more profound impact on commodity grades of emulsion SBR and polybutadiene rubber, though specialty solution SBRs have been untouched, says Warren Hall, Goodyear's market manager for elastomers. "We are seeing imports of commodity grades," he adds.

Mr. Hall notes that it has also been more difficult to sell commodity products into Asian nations. "In the commodity grades, it is very difficult to compete in Asia today," he says.

Jean Meador, an analyst with Phillip Townsend Associates, agrees. "The emulsion market has been plagued by overcapacity," she says, adding that this has been further complicated by the financial crisis in Asia. She explains that some Asian producers, particularly those from South Korea, have been aggressively exporting emulsion SBR into the US.

US producers have even filed anti-dumping petitions with the International Trade Commission and the Department of Commerce regarding imports of emulsion SBR. In April, market leader Ameripol Synpol Corporation and DSM Copolymer filed a complaint accusing producers in South Korea, Mexico and Brazil of dumping their product into US markets. The US companies claim these producers--two South Korean, one Mexican and another Brazilian--sold emulsion SBR into the US for prices that where lower than those in their countries of origin.

According to the counsel representing the petitioners, the foreign producers have been dumping product into the US for the past few years. He says the situation was at its worst during the second half of 1997, when the crisis in Asia started to pressure the international emulsion SBR market.

USITC held a hearing on the petition and in May made a preliminary determination that domestic industries were being injured by the alleged dumping, the counsel says.

The Department of Commerce is investigating the extent to which the alleged dumping occurred and is collecting data provided by three of the overseas producers that are cooperating with the investigation. DOC will make its own preliminary determination in October and duties may follow. More anti-dumping duties could be imposed on the importing companies if they are found guilty under a final determination of dumping, which may come early next year along with a final USITC ruling.

While emulsion SBR may demonstrate the volatility of commodity products, producers say the industry's major growth has been in specialty grades of solution SBR rubber.

Solution elastomers have been growing at a 4 to 6 percent clip worldwide, according to Goodyear's Mr. Hall. He adds that the highest growth regions have been North America, Latin America and Europe because of the growing presence of radial tires in the automotive market. "With the radialization that has taken place in tires, there has been a trend toward natural rubbers and solution elastomers," he says.

Mr. Hall adds that relative to emulsion rubbers, solution SBRs are easier to process into tires and are suited to meet weight reduction average fuel economy requirements.

Solution SBRs are generating interest because they allow greater control of physical properties such as molecular weight distribution, says Jay Lovrak, manager of sales operations for Firestone Synthetic Rubber & Latex Co. "The rubber has changed--with functional groups being added to the rubber backbone itself," he explains, noting that solution producers can design rubbers for specific applications.

Specialty grades also enjoy premium pricing, making the market attractive for future investment. "That would be a reason why a company like ours would entertain such an R&D expense," Mr. Lovrak says.

Goodyear's Mr. Hall agrees. "Our investments speak for themselves," he says. As part of the plan to invest $600 million in its chemicals business, Goodyear is building a 240-million-pound solution elastomer plant in Beaumont, Tex., set for completion in early 2000. The facility will make solution SBR and polybutadiene for the rubber industry. The company is also looking to boost polyisoprene capacity by 40 million pounds.

Bayer Corporation is spending $68 million to expand polybutadiene (BR) and solution SBR production at its Orange, Tex., site by 165 million pounds. The company says the expansion will bring its capacity of solution SBR and BR in North America to 660 million pounds. The expansion is targeting the tire, high-impact polystyrene, ABS and industrial markets.

The site currently manufactures cobalt BR, lithium BR, hydrogenated nitrile butadiene rubber and ethylene propylene rubber. The project will convert the plant's lithium BR line to one that can also manufacture solution SBR and neodymium BR.

There has also been investment in the emulsion SBR market. In October, DynaGen, a subsidiary of Continental General Tire Inc., sold its Odessa, Tex., site to Ameripol Synpol (Asco). The sale was a move by CGT to focus on its core business of making tires, in which it has a number-four position in the global market. According to SRI International, a Menlo Park, Calif., consultancy, the Odessa plant, launched in 1958, makes about 210 million pounds of SBR per year.

Ameripol Synpol's annual emulsion SBR capacity is about 725 million pounds at its site in Port Neches, Tex. The plant is integrated with Asco's SBR business, says a company spokesman. "We are very pleased with combining the Odessa and Port Neches plants in Ameripol Synpol Corporation," he adds.

Declining feedstock costs may give commodity producers some margin relief, says Phillip Townsend's Ms. Meador. Styrene prices rolled over in July at 25 cents per pound. She says buyers will likely put downward pressure on August contracts. Butadiene dropped by a penny in August to 16 cents per pound.

She adds that natural rubber prices have also been slumping. She says the International Natural Rubber Organization is trying to strengthen rubber prices by buying some of the oversupply. In May, prices dropped below the May buy level, a floor that INRO sets. Prices levels for October-November deliveries are 30.6 cents for SIR-20 and 33.2 cents for SMR-20.

BASF CORPORATION--BASF has doubled the size of its of its applications and testing laboratory for acrylic latex architectural coatings at its Charlotte Technical Center. The new space is earmarked to help BASF customers develop and formulate interior and exterior latex coatings. The company also completed a UV-curable and industrial coatings lab at the same site in March.

TITANIUM DIOXIDE--On the heels of industry price increases in North America, Millennium Inorganic Chemicals is raising the prices of its Tiona titanium dioxide pigments in Europe by £70 to £90 ($115 to $147) per metric ton, depending on grade, effective September 14.

The company says that strong US and European markets have offset the downturn in Asian demand, and a price increase is needed for capacity investments to support future demand growth. Millennium has a 41,000-metric-ton expansion at its Stallingborough, UK, facility due on stream early next year.

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