20 February 2012 00:00 [Source: ICB]
It has been a year-long roller-coaster ride for styrene butadiene rubber (SBR) pricing, with many peaks and valleys. Now rising feedstock costs, especially butadiene (BD), are driving the global price of SBR up again.
"We have no choice but to increase the SBR prices every week as the feedstock BD spot price is going up very sharply and very fast, and we have to play catch0up or we will lose money," said a northeast Asia SBR producer.
BD makes up 70% of the composition and costs of SBR. Styrene is SBR's other main ingredient.
UP IN THE US
US February SBR contract prices rose on average by 13 cents/lb ($287/tonne, €215/tonne) for non-oil grade 1502 to reach $1.36-1.46/lb, and by 9 cents/lb for oil-enhanced grade 1712 to reach $1.13-1.25/lb.
US SBR spot prices for non-oil grade 1502 material rose by 10 cents/lb ($220/tonne, €165/tonne) on price hikes for feedstock BD and styrene to $1.50-1.60/lb. Spot prices for oil-enhanced grade 1712 SBR were $1.35-1.40/lb.
According to Venere Vitiello, sales director for US-based marketing firm The Plaza Group, "2011 was a tough year on the synthetic rubber supply side," and "pricing will be moving upward in the next couple of months due to the already tight supply of BD in the marketplace."
This will be compounded by scheduled maintenance turnarounds for seven to nine crackers in the US, expected to take place between January and the end of June, Vitiello adds.
February BD contract prices in the US rose to $1.18/lb and $1.30/lb in a split settlement.
January styrene contract prices have shown early settlement indications of rising by 7.5 cents/lb over the December contract prices to 66-70 cents/lb.
Most market participants, including SBR producers, do not know what is behind the feedstock increases because demand is weak and tire and non-tire application sales are below expectations.
Producers say they see demand building, which has been attributed in part to an attempt to buy material ahead of price hikes.There is also an expected increase in demand from the automobile segment, which looks to grow in the number of units sold in 2012 over 2011. In 2011, 75.9m light vehicles worldwide are expected to be assembled, up by 6% from 2010, according to forecasting service Autofacts. Germany-based Bayer MaterialScience projects light vehicle growth to grow another 6% to reach 81m units in 2012, and that the 100m mark will be reached in 2015.
Meanwhile, producers said they are trying to stay ahead of the curve, since they cannot afford to let prices go flat and then initiate abrupt price changes to offset rising feedstock costs.
ASIA AND EUROPE
SBR prices rose in mid-February in Asia in line with the surge in the feedstock BD costs.
The feedstock BD prices have climbed above $3,550/tonne CFR NE Asia, up by $400/tonne from early January, resulting in spot offers of non-oil grade 1502 SBR increasing to $3,600-3,700/tonne CFR Asia. Spot offers of oil-extended grade 1712 also rose in mid-February to $3,200-3,300/tonne CFR Asia.
European SBR producers are targeting increases of €200-250/tonne but buyers are seeking to limit the rise to €150-200/tonne depending on grade.
The European BD contract price for February has been agreed at €1,935/tonne FD NWE, up by €235/tonne from January.
As of early February, European contract prices for 1500 grade SBR were at €2,500-2,600/tonne FD NWE, an increase of €200-250/tonne. 1723 grade SBR is assessed by ICIS at €2,300-2,350/tonne FD NWE, and 1783 grade at €2,250-2,300/tonne FD NWE, an increase of €100-150/tonne.
SBR producers are keen to pass on the feedstock cost increases, but consumers say that downstream demand is so weak it would be extremely difficult to pass it down to their customers.
Most buyers are concerned about recent feedstock developments and said this has come at the worst time. Two tire producers had to revise their annual forecasts and lower their tire sale projections for 2012, without disclosing by how much exactly.
One tire manufacturer said that because of higher fuel prices, fewer people travel by car or buy cars, which means lower demand for tires. In addition, milder weather conditions have resulted in lower winter tire sales.
Another producer was more pessimistic. "Because of the mild winter, we have a lot of winter tires left in stock, and the last [winter] season was not very good either, so I expect lower sales volumes next year as well. The first half of the year will see a reduction in [tire] sales, but the market will recover in the second half when people will have a clearer view on where the economy is heading."
Producers add that because a number of feedstocks are traded in US dollars, a weaker euro exchange rate can also boost SBR prices.
But some are counting on a rebound. Last month, Japan-based Sumitomo Chemical began building a new 40,000 tonne/year solution styrene butadiene rubber (S-SBR) plant on Jurong Island, Singapore. Commercial production is expected by the end of 2013, said the company.
Because Sumitomo expects future demand growth for S-SBR, the company is already considering capacity expansions at the new plant. S-SBR is used to make high-performance, fuel-efficient tires. Proximity to the important Asia markets was a consideration when choosing the new facility's location, as was the stable procurement of BD, it said.
According to UK-based Merchant Research & Consulting, the total global market for SBR will expand at approximately 2-3%, following the revival of the world automotive industry.
But Ireland-based consultancy Research and Markets (R&M) is more upbeat, saying global demand for SBR is expected to increase at a compounded annual growth rate (CAGR) of 6%, to reach 8.2m tonnes by 2020.
Global demand for SBR has risen in the past 10 years, said R&M, from 3.28m tonnes in 2000 to 4.57m tonnes in 2010. The Singapore-based International Rubber Study Group (IRSG) expects total worldwide rubber consumption to reach 25.8m tonnes for 2011 and 27.5m tonnes in 2012. Global synthetic rubber demand is forecast to grow by 4.4% to 14.7m tonnes in 2011 and by another 7.9% to 15.8m tonnes in 2012.
The automotive market accounts for nearly 75% of the rubber industry. According to the IRSG, tires utilize the largest share of rubber - nearly 60% - with other automotive parts accounting for another 10 to 15%.
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