FocusAsia tyre makers may opt to switch to NR on spiking BR prices

23 June 2011 05:12  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS)--Tyre producers in Asia may choose to adjust their formulations to use more natural rubber if prices fall below $4,000/tonne (€2,800/tonne), as the product offers a much cheaper alternative to butadiene rubber (BR) as raw material, industry sources said on Thursday.

The two products are substitutes for each other in the manufacture of tyres for the automotive industry, with prices moving in different directions.

TSR 20 NR prices at the Singapore Exchange (SGX) have tumbled by more than $300/tonne since late May to around $4,360/tonne on 23 June. The contract was for delivery in September.

Spot BR prices, on the other hand, increased by $175/tonne, or 4.1%, roughly over the same period and was assessed at $4,300-4,550/tonne CFR (cost and freight) SE (southeast) Asia on 16 June, according to ICIS.

Offers for July and August BR, meanwhile, were at $4,800-5,000/tonne CFR Asia, up by $200-300/tonne from the previous month, market sources said.

“We are expecting natural rubber prices to fall further to around or below $4,000/tonne in July and will not finalise our BR contracts until we have a clearer picture of the natural rubber price,” an Indian tyre producer said.

Soaring BD costs underpin the spikes in BR offers, according to rubber producers.

“The raw material costs of BD have jumped up so much in the past month and are still rising. [Prices are] likely to climb above $4,000/tonne in July, which means that our margins will be eroded,” a Korean BR producer said.

Feedstock BD prices  surged to around $3,800/tonne CFR (cost and freight) NE (northeast) Asia on 17 July, up by more than $300/tonne since mid-May, according to ICIS.

“It is impossible to absorb such ridiculously high offers for BR, given the current extremely challenging tyre market situation,” a tyre producer in SE (southeast) Asia said.

Car production and sales in the key China market have been falling for months, because of rising fuel prices and restrictions imposed on car-buying in first-tier cities like Beijing and Shanghai.

In Japan - the world’s third biggest economy - car production is also on a decline, with its automotive industry yet to fully recover from the massive quake that struck the northeastern part of the country in March.

In India - another important car market in Asia - passenger car sales continued to grow in May but at a much slower pace compared to the previous month. Last month’s growth of 7% was just half of what it was in April, according to industry data.

“We will not accept higher than $4,300/tonne for BR as we can material at this level from traders,” an Indian tyre producer said.

Asian BR producers have been under pressure to reduce their offers, as traders with old stocks are currently offering competitive prices in the market.

“Offers from traders are mostly one-off and usually only for small lots. They cannot offer the volumes or quantities, and reliable delivery required by tyre makers,” a BR producer said.

($1 = €0.70)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Helen Yan
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