FocusAsia BR to hit $4,000/t on tight supply, high rubber prices

19 January 2011 05:31  [Source: ICIS news]

BR goes into making of tyres and many products including basketballsBy Helen Yan

SINGAPORE (ICIS)--Asia’s butadiene rubber (BR) prices are poised to breach the $4,000/tonne (€3,000/tonne) mark - highest since July 2008 - as tight supply and high natural rubber prices have spurred producers to hike offers for February, industry sources said on Wednesday.

Spot offers for February cargoes have been raised to $4,000-4,200/tonne CFR (cost & freight) Asia, up by about $200/tonne from the previous month, producers said.

The values would be a record high since July 2008 when prices rose to $4,100/tonne CFR NE (northeast) Asia, according to data from ICIS.

Several Asian BR producers said they have limited spot availability because of their first quarter (Q1) contract commitments.

“Our top priority is to our long-term contract customers and we have very little spot product,” a Korean BR producer told ICIS.

“We have received several enquiries for spot cargoes from stockists in China. They are looking to buy 1,000 tonnes and are prepared to pay at least $3,900/tonne [on a] CFR basis, but we have no inventories as we are sold out for January and February,” said a BR producer in southeast Asia.

BR spot prices have surged by nearly $1,000/tonne since early November 2010, when prices were hovering at around $3,050/tonne CFR northeast (NE) Asia, according to data from ICIS.

Tight supply, strong demand and soaring natural rubber values have fuelled the upward spiral of BR prices, industry sources said.

BR and natural rubber are substitutes for each other in the production of tyres for the automotive industry.

TSR 20-grade natural rubber futures surged to $5,360/tonne for March delivery at the Singapore Commodity Exchange (SICOM) earlier this week, up by more than $1,400/tonne since early November 2010.

“Demand for BR has increased significantly, as the tyre producers have changed their formulations to use more BR, which is cheaper as compared to natural rubber,” said a BR producer.

However, downstream tyre makers have cautioned against the relentless hikes in natural rubber and BR prices, saying their margins have been squeezed and that they would cut their operating rates if need be.

Several major tyre producers, including Goodyear, Michelin, Bridgestone, Continental, Yokohama and Apollo Tyres, recorded higher sales last year but saw their margins squeezed by rising raw material costs.

“The prices of natural rubber and BR are too high to bear and are causing us a big headache,” said a major tyre producer.

“The current BR spot price at $4,000/tonne for BR is unworkable and if prices were to continue to rise, it will certainly affect our operations,” he added.

Several major Chinese tyre producers have already said they would shut down their plants for a longer-than-expected duration of two weeks during the Lunar New Year, according to the China Rubber Industry Association (CRIA).

The Lunar New Year holidays begin on 3 February this year and tyre factories would usually be shut for two to three days, or at most, a week for the festive celebrations.

However, the high cost pressure has forced several tyre makers in China to shut for a longer duration this year, sources from the CRIA said.

($1 = €0.75)

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By: Helen Yan
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