OUTLOOK '11: Europe SBR to see higher volumes on tyre demand

29 December 2010 11:15  [Source: ICIS news]

By Mark Victory

LONDON (ICIS)--Europe’s styrene butadiene rubber (SBR) market is forecast to have demand growth in 2011 of 3-6%, stimulated by increased tyre demand and lower supplies of natural rubber.

Some players said that if end-user market forecasts prove to be accurate, demand would return to levels last seen in 2007 and the first half of 2008.

Europe is looking at similar volumes to 2007, which was the peak period,” a major tyre manufacturer said.

Tyre production is the major downstream market for SBR in both Europe and Asia.

Higher volumes in 2011 would stem from tyre replacement, which had been put on hold since the start of the global economic downturn in 2008. This was particularly true in the truck market, which had been using tyres from disused trucks. The recovery in the global economy meant this practice was no longer needed, sources said.

Strong demand was expected to create supply shortages during the peak season and would be most noticeable in the second quarter, which is also traditionally the strongest period for vehicle production.

“Supply will be tight in some periods on strong demand. Strong demand will come from Asia and some from Europe, possibly in quarter two,” an SBR producer said.

Some sources said that order books were artificially strong, with forecasts designed to ensure supply rather than to create a reflection of underlying demand.

Exports to Asia, which have been high throughout the fourth quarter of 2010, would be driven by GDP growth in China and increased social mobility there.

In addition, natural rubber shortages following floods in Taiwan and Pakistan were fuelling demand for SBR, which can be used as a substitute for natural rubber in Asia.

Technical requirements in Europe limit the amount of SBR that can be substituted for natural rubber to about 5-10% of the market. In Asia, substitution is commonplace. Natural rubber availability was expected to remain low in 2011, boosting European exports to Asia.

As of mid-December, margins available from Asia were at €350-400/tonne ($459-524/tonne) above those for material sold in Europe, exporters said.

European prices would need to go up in the first quarter in order to close the gap with the export market, according to both buyers and sellers. The price rises would need to be done on a step-by-step basis, as it would be difficult for downstream markets to absorb increased costs.

“We can sell freely into Asia at over $3,000/tonne, which means the gap between Europe and Asia is unacceptable. The question is when and where [to increase SBR prices]. We would need [to raise prices] €400/tonne to close the gap,” a producer said in mid-December.

Expectations of increased feedstock costs were adding further support to calls for price hikes. January and first-quarter contract discussions were yet to begin, and no firm targets would be announced until costs in the upstream butadiene (BD) market were known.

European SBR contracts were expected to move away from quarterly to monthly pricing, following a similar trend in the BD market.

($1 = €0.76)

For more on SBR visit ICIS chemical intelligence
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By: Mark Victory
+44 208 652 3214

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