FocusAsia tyre makers resist BR price hikes for February, March

19 January 2012 06:20  [Source: ICIS news]

By Helen Yan

BR is used in the manufacture of tyres for the automotive sector.SINGAPORE (ICIS)--Major tyre makers in Asia, stricken with weak exports sales, are putting up a strong resistance to a $300-500/tonne (€234-390/tonne) hike in butadiene rubber prices this week for February and March shipments, industry sources said on Thursday.

BR producers are offering $3,600-3,800/tonne CFR (cost and freight) Asia – up by more than 10% from January levels – citing a continued spike in the cost of feedstock butadiene (BD).

“We are not happy with this situation because when the feedstock BD price fell to around $1,500/tonne last November, the BR producers did not adjust their prices downwards,” said an India-based tyre maker.

“Buying sentiment is weak and we will not accept a big price hike for February and March shipments,” he added.

BD prices were assessed at $3,050-3,100/tonne CFR northeast Asia in the week ended 13 January, nearly double their values two months ago, according to ICIS data.

BD is the raw material for the production of BR, which in turn, is used in the manufacture of tyres for automobiles.

But Asian tyre makers are coping with poor export sales amid a weakening global market condition, affecting China and India - the region’s biggest emerging economies – that any significant increase in cost of production would not be welcome.

Asia is a major tyre production centre, with a good portion of the output being exported to Europe, where demand is falling given the region’s huge debt problem.

In the EU, new registrations for passenger cars fell by 1.7% in 2011, despite an increase recorded in Germany – the biggest car market in the eurozone, according to data from the European Automobile Manufacturers Association (ACEA).
“In 2011, most of the significant markets declined, from -2.1% in France to -4.4% in the UK, -10.9% in Italy and -17.7% in Spain,” ACEA said.

Germany was the exception as demand for new cars grew by 8.8% over 12 months. It remained the largest market with a total of 3.17m new registrations, followed by France (2.25m units) and the UK (1.94m units),” it said.

Slowing global vehicle sales have prompted tyre makers to adopt a prudent stance.

“The first quarter [export sales] is expected to be slow and flat with the ongoing eurozone debt crisis and concerns over a global slowdown. We are very cautious and will not build up our inventories and will not accept a big BR price hike in the first quarter,” said a second tyre producer.

In China, car sales and production in 2011 registered the slowest rate of growth in 13 years at only 2.45% and 0.84%, respectively, according to the China Association of Automobile Manufacturers (CAAM) said.

BR producers, on the other hand, are also contending with losses caused by the unabated increase in BD values.

“The feedstock BD and BR prices are at about the same price levels. We are losing money and have negative margins as the feedstock BD costs have wiped out all our margins,” said a northeast Asian BR producer.

BR prices were assessed at $3,250-3,400/tonne CFR NE Asia in the week ended 12 January, ICIS data showed.

BR must at least be priced $600-700/tonne higher than BD for BR producers to generate margins.

Some BR producers in China, South Korea and Taiwan have opted to cut production in response to the soaring feedstock costs.

“We cannot operate a losing business, so we plan to cut the operating rates of our BR plant to 70% of capacity in February,” said a company source at a Taiwanese BR plant .

BR producers in Asia include LG Chem, Kumho Petrochemical Co (KKPC), TSRC and TSRC-UBE Nantong, while the tyre makers in the region include Bridgestone, Michelin, Continental, Toyo Tires, Silverstone, Apollo, MRF and BKT.

($1 = €0.78)

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

By: Helen Yan
+65 6780 4359

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