FocusGlobal car demand slump weighs on Asia SBR

20 November 2008 05:56  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Asian styrene butadiene rubber (SBR) values could fall further even after an unprecedented 40% plunge in November as global automobile sales dry up, SBR producers and tyre makers said on Thursday.

Benchmark non-oil grade 1502 spot prices to China have fallen to $1,500-1,600/tonne (€1,185-1,264) CIF (cost, insurance and freight) China this week, down $1,000/tonne from the previous month, according to global chemicals intelligence service ICIS pricing.

Market sources speculate prices could fall further to $1,100-1,200/tonne CIF by the end of this year, with key Chinese markets setting the dour trend.

“We believe there is still room for non-oil grade 1502 prices to fall another $400/tonne by the end of this year as demand is not expected to recover, given the slow automobile sales and global recession,” a downstream tyre maker said.

China, a key tyre maker, has seen domestic non-oil grade 1502 prices plummeting by a whopping yuan (CNY) 16,000/tonne to CNY 9,500-10,500/tonne ex-warehouse (EXWH) since its July peak as demand has shrunk amid the global downturn.

With the top three US car makers - General Motors, Chrysler and Ford Motors - seeking a $25bn bridging loan from the US government in a last-ditch bid to stave off bankruptcy, market players believe there could be more bad news ahead for Asian tyre manufacturers.

“There will be a major impact on the tyre and synthetic rubber market if GM or any of the big three was to go down,” a Chinese SBR producer said.

Hundreds of tyre makers have already shut down or slashed operating rates in China as falling global automobile sales and the fallout from the global financial crisis and credit crunch hit the export-driven Chinese economy.

Although China’s domestic auto manufacturers have not been as hard hit as the three Detroit-based car manufacturers, some of the country’s auto makers have asked the Beijing government for incentives like lower taxes to boost domestic car sales, which have slowed down in recent months in a once booming market.

Automobile sales in China slowed to 11% in the first 10 months of the year from an 18.5% clip a year earlier, with units sold falling in August and September before rising again in October, data from the China Association of Automobile Manufacturers (CAAM) showed.

Even Singapore, with one of Asia’s highest GDP/capita ratios, was not spared the sharp decline in car sales. The city-state posted a record decline in certificate of entitlement (COE) premiums, which allows for car ownership, reflecting the much weakened consumer appetite for big-ticket expenditures. COE for small cars was now a mere Singapore dollar S$2 from S$10,455 a fortnight ago, according to media reports.

Automobiles are an important chemical end market, in that each has an average of $2,200 worth of chemistry, according to the American Chemistry Council. Automobile parts include rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings.

Further weighing down the SBR price, the depreciation of the Korean won against the US dollar has also pushed some Korean SBR producers to offer huge discounts.

“The tyre makers are holding off their purchases while Korean suppliers with stocks piling up are offloading material to ease their US dollar cash flow,” a trader said.

The recent sharp falls in the feedstock butadiene (BD) and styrene monomer (SM) have added also to the downward price pressure.

BD has plunged to $800/tonne CFR (cost and freight) NE (northeast) Asia, down more than $1,200/tonne while SM has fallen to $550/tonne CFR NE Asia, down $350/tonne from the previous month.

($1 = €0.79)

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By: Helen Yan
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