OUTLOOK '11: Newly-resurgent US SBR market slowly gathers speed

29 December 2010 19:52  [Source: ICIS news]

US SBR market slowly gathers speedBy Gene Lockard

HOUSTON (ICIS)--For the US styrene butadiene rubber (SBR) sector, 2011 is likely to produce few variations on 2010 themes, including challenges ranging from a slowdown in vehicle sales to high feedstock prices besetting producers.

The most challenging obstacle facing producers for much of 2010 was a lack of strong, sustained demand, which slowed suddenly during the economic downturn. Unfortunately for sellers, there was no magic bullet to suddenly improve the situation, said an analyst for a producer.

“There likely won’t be any huge increases [in demand] over the next three or four years, and I don’t think we’ll recover to pre-2008 demand highs until 2014 or so,” the analyst said.

Tyres remain the biggest demand driver for SBR. There were about 303m tyres - original equipment manufacturer (OEM) and replacement tyres alike - shipped in North America in 2007, according to the analyst. That figure likely would be reached again until 2014, when as many as 308.5m tyres are projected to ship within the region.

However, gains in demand would come in small increments as the economy recovers and new vehicle sales begin to rise. The analyst said North American tyre demand, which is key to the SBR market, would ncrease about 2.0-2.5% in 2011, and an additional 3% in 2012.

A change in motorists’ driving habits because of soaring gasoline prices in 2008 appeared to be permanent as drivers continue to combine trips and drive fewer miles. These behaviours would limit the upside potential for SBR demand as the economy increases, the analyst added.

Still, North American demand for SBR rose about 14% in 2010 over 2009, and a producer noted production issues at a fellow producer’s facility resulted in a run-up in demand that produced sold-out conditions for December.

“I’m not convinced the size of the demand increase is sustainable, since it’s due in part to issues elsewhere which brought customers over to us. But for now, we’re running plants hard to keep up,” the producer said, adding that maximum production rates for SBR had been abandoned long ago due to the drop in demand.

A rise in Asia's polymer capacity in early 2011 is another challenge for US sellers, the analyst said.

“Demand in Asia and other regions comes and goes, and we can expect more of the same next year as we saw in the third and fourth quarters of 2010, when the arbitrage window reversed directions,” the analyst said.

Noting that high demand in Asia had closed the flow of exports to the US while opening the trade window for US exporters, a seller said it had shipped 1502 non-oil grade SBR to Asia at $3,000/tonne (€2,280/tonne) in December. By comparison, US spot prices for 1502-grade material were about $2,600/tonne in late December.

While lower-than-normal demand and changes in arbitrage opportunities with other regions exerted an influence over the SBR market throughout the year, it was the run-up in production costs incurred from increasingly pricy feedstocks that was the main price driver, a producer said.

US SBR contract price movement is driven mainly by the price of butadiene (BD), which climbed  from a settlement low for the year of 63.00 cents/lb in January to a split settlement price of 86.00-87.00 cents/lb in December. That was down from the high settlement of 94.00 cents/lb seen in July and again in August, but was also well up from the December settlements of 50.00 and 65.00 cents/lb seen in 2008 and 2009, respectively.

BD was expected to remain tight on a lack of crude C4 moving into 2011, and the resulting high prices prevented much flexibility in pricing, SBR sellers said.

A weather-related natural rubber shortage kept prices near $2.10/lb, - an extremely high figure historically  -  and made for additional worries for SBR producers who long ago substituted out as much natural rubber as possible from their formulas.

The difficulty in raising SBR spot prices to offset high natural rubber prices was that domestic demand remained capped by the overall economic recovery. It is one thing to raise prices when demand is strong, quite another to raise them when demand is flat due to sluggish new vehicle sales, which limit the OEM market, the analyst said.

It seemed to be a general consensus that while the combination of challenges facing US SBR players was not enough to let the air out of the domestic market, it would be some time before the sector races to catch up to the heady days prior to 2008.

North American SBR suppliers include include Goodyear, International Specialty Products (ISP), Lion Copolymer and Negromex.

($1 = €0.76)

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By: Gene Lockard
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