Polymers: Asia styrene butadiene rubber prices fall on recession fears

29 August 2011 00:00  [Source: ICB]

Prices for styrene butadiene rubber (SBR) fell in China due to weak demand and fears over another economic recession. Buyers have grown increasingly cautious over the recent bout of plunging crude oil prices and global market turmoil.

Buying indications for non-oil grade 1502 SBR, which had already been weakening, further declined to $4,200-4,300/tonne (€2,898-2,967/tonne) CFR (cost & freight) Asia, but offers were mostly heard at $4,450-4,550/tonne CFR, as assessed by ICIS in the week ended August 17.

Some downstream tire makers in India are holding back on buying because they expect prices to fall below $4,000/tonne CFR Asia. On the other end, some SBR producers reported having limited spot availability due to production cutbacks.

In comparison, spot prices in China for non-oil grade 1502 SBR fell to $4,300-4,400/tonne CIF (cost, insurance & freight) China in the week ended August 17, another reflection of weak demand, ICIS assessed. Spot offers above $4,400/tonne CIF China were met with resistance.

Burning tyre field, Rex Features
 © Rex Features
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Prices for domestic non-oil grade 1502 SBR prices fell by roughly Chinese yuan (CNY) 1,000/tonne ($156/tonne, €109/tonne) to CNY32,300-32,800/tonne EXWH (ex-warehouse) in east China. Chinese domestic oil-extended 1712 grade SBR prices also dropped by about CNY800-1,000/tonne in the past week to CNY28,500-29,200/tonne EXWH in east China, as assessed by ICIS in the week ended August 17.

Trade was characterized as quiet as distributors and downstream tire makers remained on the sidelines to wait for more clarity on pricing.

In terms of contract prices, some Asian SBR producers concluded third-quarter contracts for non-oil grade 1502 SBR with some large tire makers at $4,300-4,500/tonne CFR Asia, although other tire producers might have also settled their contracts earlier at $4,400-4,600/tonne CFR Asia.

STRONG TIRE GROWTH

A silver lining for SBR lies in a continuing strong market for premium tire products.

"While industry volumes remained weaker overall, there remained strong demand for our premium innovative products in both emerging and developed regions," said Rich Kramer, chairman and CEO of Goodyear Tire & Rubber, during the company's second-quarter earnings conference call on July 28.

Goodyear saw 18% year-on-year revenue growth in its North American Tire business in the second quarter of this year.

"The most impressive results were delivered by our North American Tire business, which delivered earnings of $137m, marking its most profitable quarter since 1998," Kramer said.

The company achieved total sales of $5.6bn, the best in the company's history, he stated.

Growth in Asia has been particularly strong, supported by an expanding retail presence in China. Goodyear opened 64 new retail stores there in June alone.

"In June, the first tires for ­public sale were manufactured in our new factory in Pulandian, China. Crossing that threshold was an important step for our operations and presence in China," Kramer said.

Increasing raw material costs and the economic environment will remain challenges in the near future.

"We're facing substantial, raw material cost increases in the second half of 2011. This shows no signs of abating," he said.

China SBR price chart

"In the second half of 2011, we expect the global tire industry to continue to grow, but recent trends have affected our outlook somewhat," said Kramer.

"We see the recovery in developed markets remaining sluggish overall, driven in large part by two things: the first is a genuine macroeconomic concern relative to the prevailing debt issues in both the US and Europe, which is having a discernible impact on confidence among customers; the second is a more balanced relationship between sell-in to the dealer channel versus sell-out to end users."

A trend that has emerged is lower sell-in volumes compared to sell-out volumes in the second quarter. During the first quarter, sell-in was stronger than sell-out.

The balance has shifted toward meeting consumer demands and away from inventory restocking.

"Balanced against some of these challenges is continuing strong demand for our high-value added branded products, which in many cases, remain in short supply. We see industry growth in areas, such as consumer elite tires, particularly as the Japanese automakers continue their recovery from the effects of this year's natural disasters," Kramer said.

Exacerbating the situation for SBR producers is the sustained high price of feedstock styrene monomer (SM) in Asia due to tight supply, despite weak demand in that region and slow downstream resin markets, ­traders reported in the week ended August 17.

SM spot prices hovered at $1,500/tonne CFR China over that week, after recovering from $1,460/tonne CFR China on August 9 when the sell-off in crude prices were below $77.00/bbl, as assessed by ICIS.

Though demand for SM remained weak, supply has remained short because of multiple plant shutdowns in the region, the traders said.

In Taiwan, Formosa Chemical & Fibre Corporation's (FCFC) 200,000 tonne/year No. 1 and 300,000 tonne/year No. 2 SM lines have been shut since the middle of May following a fire at the producer's No. 1 cracker in Mailiao.

Taiwan Styrene Monomer Corporation's (TSMC) 180,000 tonne/year No. 1 line in Lin Yuan remains shut since late July because of mechanical problems.

In China, major producer Shanghai SECCO Petrochemical shut its Shanghai-based 500,000 tonne/year plant in early August for maintenance.

In Singapore, Seraya Chemical shut its 330,000 tonne/year SM unit for maintenance during the month of August, as reported by several market sources.

  • Additional reporting by Clive Ong in Singapore

Author: Feliza Mirasol, Helen Yan and Clive Ong



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