FocusAsia SBR Q2 contract talks stall

06 March 2008 03:37  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Second-quarter contract talks for non-oil grade 1502 styrene butadiene rubber (SBR) in Asia have stalled due to sharp falls in butadiene (BD) feedstock values, buyers and producers said on Thursday.

A looming US recession, a weak US dollar, the credit crunch and high energy costs add to the caution, they said.

 “Customers are more cautious and some smaller customers have decided to settle on a monthly basis instead of a quarterly basis to streamline their stock levels and control costs,” a producer said.

BD feedstock spot prices in Asia have fallen by more than $200/tonne (€132/tonne) to around $1,670/tonne CFR (cost and freight) northeast (NE) Asia from its early February peak of around $1,900/tonne, forcing  SBR makers back to the drawing board.

SBR producers have revised second quarter contract offers downwards by $50-100/tonne amid mounting resistance to the proposed 25% hike to $2,500/tonne CFR Asia for the Q2 non-oil grade 1502 contracts.

However, major end-users such as downstream tyre makers are still up in arms.

At most, a 10% hike to around $2,200/tonne for the non-oil 1502 grade  was more in line with the rise in upstream costs as they could not continue to absorb and pass on the raw material costs to their customers, they said.

“The Asian market is too spot-driven and volatile and this is not healthy for the industry in the long term,” a major tyre manufacturer said.

“A more structured long-term pricing mechanism would be more beneficial as it could help stabilise the market rather than the current quarterly contract negotiations which are subject to pricing volatility,” he added.

An Asian SBR producer, however, said that the traditional way of doing business in Asia is based on negotiations and a structured long-term pricing mechanism would not be suitable in Asia.

“Bargaining and negotiation are part and parcel of doing business in Asia and it will be difficult to change this way of doing business (in the region),” he said.

“It used to be easier to see the trends and negotiate and settle, but this is not the case today. The uncertainty and speculation in today’s global energy and commodities market is making it very difficult to make long-term projections and to settle on an annual basis,” he added.

Apart from feedstock costs, the 25% spike for the second quarter non-oil grade 1502 contracts was also driven by the bullish oil prices and rising natural rubber prices.  

Nymex crude has surged past $104/bbl while natural rubber futures in Tokyo have breached the psychologically important level of 300 yen/kg.

The bullish trend in oil prices has drawn funds into natural rubber, boosting its price and as a consequence, also bolstering the SBR price. Natural rubber and synthetic rubber prices tend to move in tandem as they are interdependent substitutes.

First quarter non-oil grade 1502 SBR contracts were settled at $1,950-2,000/tonne.

Major Asian SBR producers include Korea Kumho Petrochemical Co (KKPC), LG Chem, Indopol, Bangkok Synthetics Elastomers (BSTE), Zeon, TSRC and JSR Corp.

Tyre producers include Bridgestone, Michelin, Yokohama, Hankook Tires, Federal Tire, Apollo Tyres, Silverstone and Balkrishna Tyres.

For more on SBR visit ICIS chemical intelligence

By: Helen Yan
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