OUTLOOK '12: Asia BD may surpass $3,000/tonne in January

28 December 2011 03:34  [Source: ICIS news]

By Helen Yan

BD is the feedstock for SBR and BR, major raw materials used to make tyres.SINGAPORE (ICIS)--Butadiene (BD) prices in Asia may rise above $3,000/tonne (€2,310/tonne) in January as traders snap up dwindling stocks ahead of the Lunar New Year, traders and producers said.

Spot offers for January shipments have increased to $3,100/tonne FOB (free on board) Korea amid market talk that some Japanese traders have bought cargoes at around this price level.

With intra-regional freight costs at $60-80/tonne, this would mean that January shipments would cost $3,160-3,180/tonne CFR (cost & freight) northeast (NE) Asia.

In the week ended 23 December, spot prices were at $2,800-2,850/tonne CFR NE Asia, according to ICIS (see graph below).

BD prices in Asia have rebounded sharply since bottoming out at $1,550-1,600/tonne CFR NE Asia in the week ended 11 November, ICIS data showed.

Cracker production cutbacks in China, South Korea and Taiwan, coupled with a surge in pre-Lunar New Year buying have seen BD prices in Asia doubling since the middle of November.

“We are getting more enquiries as there is a lot of interest from traders and China buyers to procure material before the Lunar New Year,” a Korean supplier said.

China will be closed on 22-28 January for the Lunar New Year festivities.

January will be a short trading month as several countries in Asia including Hong Kong, South Korea, Taiwan, Singapore, Malaysia and Vietnam also celebrate the holiday.

However, resistance to the relentless BD price spikes is rising as several downstream styrene butadiene rubber (SBR) and butadiene rubber (BR) producers in China, South Korea and Taiwan have said they will cut the operating rates of their respective plants to 70-80% of capacity in January.

BD is a major feedstock for SBR and BR, the main raw materials used to make tyres for the automotive industry.

“Our margins have been wiped out and we will suffer a big loss in January with BD now at the same price as SBR,” a major Korean synthetic rubber producer said.

“Our BR plant in Nantong, China, will shut in February for one month while our SBR and BR plants in Kaohsiung, Taiwan will run at 70% in January,” a major northeast Asian synthetic rubber producer said.

The SBR and BR markets are not expected to strengthen for the rest of the first quarter, which is a seasonally a slow demand quarter for the tyre-making industry.

The ongoing eurozone debt crisis and concerns over a global slowdown have also dampened buying sentiment as Asia is a major production centre for the global tyre market.

Many synthetic rubber producers expect demand to weaken after the Lunar New Year, which will in turn dampen demand for BD.

“Demand for SBR and BR is very poor as our customers, the tyre makers, have told us they are not going to buy synthetic rubber in the first quarter as they have very high inventories of more than two months. They have cut down the operating rates of their tyre plants, given the poor global market,” a northeast Asian synthetic rubber producer said.

“We will consider shutting down our SBR and BR plants in China and Taiwan if the BD price continues to rise further, as the maximum price that we can accept for BD is $2,700/tonne CFR NE Asia,” the same producer added.

($1 = €0.77)

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By: Helen Yan
+65 6780 4359

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