FocusWeak sentiment cuts short Asia BD price rally

24 February 2009 05:01  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Weakened sentiment and slackening demand amid a worsening global automobile market have put a stop to the recent price rally in the Asia butadiene (BD) market, traders and buyers said on Tuesday.

BD spot prices jumped by about $200/tonne (€156/tonne) or nearly 50% to $550-570/tonne CFR (cost and freight) northeast (NE) Asia since early January but the momentum seemed to have petered out as buyers retreated to the sidelines.

BD is a major raw material for manufacturing SBR, which in turn is used as raw material for tyre production.

“No one is optimistic about the second quarter. Traders and end-users are very cautious and are closely watching the market,” said a downstream styrene butadiene rubber (SBR) producer in China.

“Everyone is keeping an eye on the GM and Chrysler situation as well as the US Citigroup financial crisis,” he added.

US major auto-makers GM and Chrysler were seeking additional funding to stave off bankruptcy proceedings amid the sharp slump in car demand, a request that would raise the bailout package for the US automotive industry to $40bn.

Also highly indicative of the depth of the US economic troubles is the challenges being faced by its financial behemoth Citigroup, which may be partially nationalized according to media reports.

The tyre industry was also feeling the brunt of the sharp slowdown in automotive sales, prompting large-scale production cutbacks and lay-offs.

Leading US tyre producer Goodyear Tire and Rubber Co had announced it will cut 5,000 jobs to save on costs, while other tyre makers including Michelin, Bridgestone, Kumho Tires and Cooper Tires have slashed operating rates and shut down production lines, further depressing demand for SBR.

The recent BD price rebound was largely driven by a surge in Chinese demand as end-users and Chinese traders returned to the market earlier this year to replenish depleted stocks. But with imported BD cargoes now in China, demand has slackened, market sources said.

Declining downstream SBR prices in the domestic Chinese market has also been adding some downward pressure on BD.

Non-oil grade 1502 SBR prices have softened to CNY11,500/tonne EXWH (ex-warehouse) this week after jumping 50% in just two months to CNY12,000/tonne EXWH from mid-December.

“End-user demand is slowing down and I forecast BD prices to decline in the near future,” a Japanese trader said.

($1 = €0.78)

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By: Helen Yan
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