OUTLOOK '12: Asia SBR prices to rise in Jan, may fall for rest of Q1

06 January 2012 06:29  [Source: ICIS news]

By Helen Yan

SBR is used in the production of vehicle tyresSINGAPORE (ICIS)--Styrene butadiene rubber (SBR) prices are under pressure to increase in January because of soaring feedstock butadiene (BD) costs but the price uptrend may not be sustainable after the Lunar New Year because of weak demand, industry sources said.

“The outlook is grim and this year, 2012, will be very challenging. We don’t see the first quarter of this year getting better. The first quarter is also traditionally a slow season and a SBR price hike will not be acceptable during these tough times,” a downstream tyre producer said.

Demand from the downstream tyre makers is expected to be weak in the first quarter because of concerns of a global slowdown amid the ongoing eurozone debt crisis.

Asia, and China in particular, is a major producing region for tyres for the global market, and falling European and US demand has prompted several tyre manufacturers in Asia to cut back on production.

However, SBR producers said that their margins have been eroded by the relentless BD price surge and they have no option but to increase SBR prices above $3,000/tonne (€2,340/tonne) CIF (cost, insurance & freight) China in the first quarter.

SBR non-oil grade 1502 prices increased to $3,000-3,100/tonne CIF China in the week ended 4 January, up by $50/tonne from the previous week, according to ICIS data. (see graph below)

“We have no choice but to increase the SBR 1502 grade prices by $50-100/tonne every week because the high feedstock BD costs have wiped out our margins,” a South Korean SBR producer said.

Feedstock BD spot offers for fresh January and February shipments have surged to around $3,100/tonne CFR NE Asia, up by a staggering $1,000/tonne since early December 2011, according to ICIS data.

In the week ended 2 December, feedstock BD prices were at $2,100-2,150/tonne CFR NE Asia, ICIS data showed.

Producers require a spread between BD and non-oil grade 1502 SBR of around $400-500/tonne in order to break even.

In response to the rising feedstock BD costs, spot offers for fresh January and February shipments of non-oil grade 1502 SBR have increased to $3,200-3,300/tonne CIF China.

The SBR price hikes have evoked strong resistance from the downstream tyre producers.

“We cannot accept non-oil grade 1502 SBR prices above $3,000/tonne CIF China, as Chinese domestic SBR prices have dropped sharply and we can source for cheaper local SBR,” a downstream tyre producer said.

Chinese domestic non-oil grade 1502 SBR prices fell by about yuan (CNY) 1,000/tonne ($159/tonne) this week to around CNY20,700/tonne EXWH (ex-warehouse).

Chinese demand has fallen as most traders and downstream tyre producers have re-stocked their inventories last month ahead of the Lunar New Year.

January is expected to be a short trading month as China is closed on 22-28 January for the Lunar New Year holiday.

“The tyre makers in China may extend their Lunar New Year holidays and shut down their factories for two to three weeks rather than the usual three days to a week because they don’t expect business to pick up after the Lunar New Year,” a Chinese SBR producer said.

“Our customers have told us that they have sufficient inventories to last them the whole quarter and that they will not purchase SBR for the first quarter,” he added.

($1 = €0.78, $1 = CNY6.29)

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Read John Richardson and Malini Hariharan’s blog –
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By: Helen Yan
+65 6780 4359

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