FocusTyre makers may cut ops on feedstock

04 June 2008 04:09  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Soaring energy and synthetic rubber costs are squeezing the margins of tyre makers and they may be forced to cut operating rates or switch to natural rubber in the long term, major tyre makers said.

"We expect demand growth for tyres to be lower than expected this year and we may cut our operating rates if demand falls," a major tyre producer said, adding the unrelenting spikes in the feedstock styrene butadiene rubber (SBR) and butadiene rubber (BR) costs are a major concern for the global tyre industry.

SBR producers are targeting a hefty 15% or $400/tonne hike to $2,800/tonne CFR (cost and freight) NE Asia for third-quarter non-oil grade 1502 SBR contracts, citing skyrocketing butadiene (BD) costs for the proposed rise.

BD is a feedstock for SBR production. BD spot prices have surged to around $2,150/tonne CFR NE Asia, up about $500/tonne since March.

BR producers are also planning to spike their third quarter contracts to $3,500-3,600/tonne, up about $500/tonne from second-quarter contracts.

On the other hand, natural rubber prices have dropped below $3,000/tonne this week, after peaking at around $3,200/tonne last week from around $2,500/tonne in January.

This has prompted a major tyre producer to consider switching to natural rubber in the long term.

"We are now reaching a breaking point as it is not sustainable to continue to absorb high raw material prices in a falling demand market. We may switch to natural rubber.

SBR, BR and natural rubber are used in the manufacture of tyres.

Another global tyre producer said it may cut operating rates at its tyre manufacturing plant in the US as sales had dropped in the US.

Sales of trucks and big sport-utility vehicles have declined amid a slumping economy and rising gasoline prices in the US, forcing GM and Ford Motor to slash truck production for the second half of the year.

Demand for passenger cars has also fallen in Japan and passengers have also started to car pool in the US, signalling a slowdown in demand in automotive sales, a major tyre producer said.

Tyre makers in China have also been hard pressed by rising energy and record high SBR, BR and natural rubber prices, resulting in some small tyre manufacturers cutting down operating rates.

"Tyre makers have become more cautious, given the huge cost pressures, and some small tyre producers in China have, in fact, cut back consumption of SBR as they are finding it extremely difficult to pass on the costs to their customers, a Chinese SBR producer said.

China-based tyre producer, Chengshan Group, has said it will consider reducing its operating rate if feedstock SBR and BR costs continue to increase while demand for tyres decreases.

For more on SBR, BD and BR visit ICIS chemical intelligence
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By: Helen Yan
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