13 September 2010 00:00 [Source: ICB]
Philip Silverman/Rex Features
Philip Silverman/Rex Features
Producers of styrene butadiene rubber (SBR) in North America may be getting the relief they need - it appears that the US price for SBR feedstock butadiene (BD) will be going down, potentially lifting producer margins. At the same time, it is hinted that Asian BD prices are rising, making overseas SBR less competitive.
Until the last week of July, North American SBR manufacturers were suffering. Roughly 70% of SBR goes into the making of vehicle tires, and while that market has been rolling along, SBR margins have been poor.
A prime woe for North American producers has been the price of SBR feedstock BD, which rose in the US by 49% between January and July on tight supply resulting from a lack of crude C4.
July BD contract prices settled at 94 cents/lb ($2,072/tonne, €1,620/tonne) and stayed there through August.
BD makes up about two-thirds of the required raw material for SBR production, with styrene monomer making up the rest, and a spread of about $400/tonne is required for SBR producers to post any profit.
US BD contracts usually settle at the lowest price nominated by the four main US producers, two of which had sought increases of 2 and 4 cents/lb for September.
But by early September, the last US BD producer to nominate for the month announced a drop of 2 cents/lb, matching a reduction sought by another supplier and likely to send contracts to 92 cents/lb, ICIS assessed.
Meanwhile, BD spot prices in the US were assessed the week ended August 25 at 92-96 cents/lb, unchanged from a week earlier but down from 95-97 cents/lb four weeks before that.
Market participants feel that this parity between spot and contract prices will mean steady pricing for September. US BD producers include ExxonMobil, INEOS, LyondellBasell Industries, Shell and TPC Group. Buyers include INVISTA, International Specialty Products (ISP), LANXESS, Michelin and Negromex.
STORM BEFORE THE CALM
Before there was any relief on the horizon, however, around late July, some SBR producers were considering turning to imports. "US tire producers need a reliable source of material," said one North American producer.
Material from Asia is traded on the spot market, instead of as a monthly contract. Additionally, SBR buyers cannot always wait the 25-30 days for product to be shipped from China. "If they buy it here, they can get it in a day or two," the producer added.
"A 2-cent drop in the feedstock price will be welcome relief for SBR producers, since they'll be able to drop prices without trimming margins as much," he said.
In late July, the arbitrage window between Asia and the US opened, allowing a significant amount of SBR to be exported to the US. South Korea, France, Germany, China, Taiwan and Japan were among the countries exporting SBR to the US.
"I've been looking over some figures and I've got indigestion right now," a US producer said in early August.
Competition from imported SBR prompted another US SBR producer to consider price cuts. "What choice do you have? If you have inventory and you want to move it, you have to cut prices," the producer commented.
As of late July, another US SBR producer said that it had just begun to import BD from Asia to close the gap in production costs among regions.
"There's no way we can compete when feedstock prices are so much higher here," the producer said at the time.
US Gulf (USG) 1502 non-oil grade SBR spot prices in early September were $1.13-1.21/lb FOB (free on board), as assessed by ICIS. SBR oil extended grade was assessed at $1.03-1.11/lb.
North American SBR producers include Goodyear, ISP, Lion Copolymer and Negromex.
ASIAN PRICE INCREASES
At the same time, Asian SBR producers plan to increase their prices for the fourth quarter (Q4) on the back of a rise in Chinese demand, industry sources said.
Offers for SBR non-oil grade 1502 will increase by $100/tonne (€79/tonne) to $2,150-2,200/tonne for October and November shipments. "But the offers may be revised further upwards, depending on [demand in] China," a Northeast Asian SBR producer said.
Even though the upsurge in Chinese domestic SBR prices was driven initially by speculative trades, major SBR producers are expecting demand from the downstream tire producers to pick up as they have to replenish their dwindling inventories.
"We anticipate demand from tire producers in China to improve from September and to remain strong into [Q4], as we expect automobile sales to pick up in China in [Q4], after slowing down in July," a Chinese SBR producer said.
A total of 946,200 automobiles were sold in China in July, up by 13.6% year on year, but down by 9.3% from a month earlier, according to the China Association of Automobile Manufacturers (CAAM). This marked the slowest rate of increase of auto sales in China in 15 months, according to CAAM data. China has surpassed the US as the greatest maker and seller of autos.
Auto sales in China usually pick up towards the end of the year, as car dealers and automakers launch promotional campaigns to boost sales ahead of the lunar New Year.
DISCUSSIONS AT STALEMATE
Although Asian BD price discussions were at a stalemate as of the first week of September, market observers are projecting that there will be a resolution soon, with BD price increases likely.
Buyers are seeking numbers at around or below $1,600/tonne CFR (cost and freight) Northeast (NE) Asia against selling targets of $1,700/tonne CFR NE Asia and above.
BD prices dropped to around $1,600/tonne CFR NE Asia in early August, down more than $100/tonne from July.
Neither buyers nor sellers were budging from their respective positions, playing a waiting game to see who would blink first, traders said.
"It depends who gets desperate first to sell or buy and that will decide the price direction," one trader said.
Major Korean olefins producer Yeochun Naphtha Cracking Center says that it plans to switch to LPG.
Asian supplies would tighten further if some Korean BD producers follow through with their plans to export 4,000-5,000 tonnes of BD to the US Gulf in September.
"It is still uncertain what will be the BD price direction. It depends on whether the downstream synthetic rubber prices will continue to go up," a trader said.
Major SBR producers in Asia include LG Chem, Korea Kumho Petrochemical and Shen Hua Chemicals. Major tire producers in the region include Bridgestone, Goodyear, Kumho Tires, Michelin and Toyo Tires.
US TIRES KEEP ROLLING
The US Rubber Manufacturers Association (RMA) said in early August that overall US tire shipments for 2010 are projected to increase by about 8%, primarily as a result of a 38% increase in new car passenger tires and a 5% increase in replacement tires.
Total 2010 US tire shipments are forecast to increase to 282m units from last year's 260m. The rebound in 2010 shipments would equal roughly 2008's shipment level, says the RMA.
According to global market intelligence provider Market-Research, global growth levels of SBR are expected to stay at around 2-3%/year.
By 2015, it is anticipated that SBR consumption will reach around 5.8m tonnes.
Additional reporting by Helen Yan in Singapore; and Brian Ford, William Lemos and Gene Lockard in Houston
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