FocusAsia SR makers hold out for lower BD prices to regain margins

07 March 2012 05:21  [Source: ICIS news]

By Helen Yan

BR and SBR are used in the manufacture of tyres for the automobile industry.SINGAPORE (ICIS)--Synthetic rubber (SR) makers in Asia are holding out for further declines in butadiene (BD) values in the hope of regaining margins, placing bids for their main feedstock for production at about $100/tonne (€76/tonne) lower than sellers’ price ideas this week, market sources said on Wednesday.

Buying indications fell to $3,350-3,400/tonne CFR (cost and freight) northeast (NE) Asia, against offers at around $3,500/tonne CFR NE Asia, they said.

BD has been on a decline for the third week, with Chinese olefins major Sinopec announcing a yuan (CNY) 1,500/tonne ($238/tonne) reduction to its domestic BD price to CNY26,000/tonne early in the week, traders said.

In the week ended 2 March, spot BD prices were assessed at $3,500-3,550/tonne CFR NE Asia, according to ICIS.

A sales tender for a late March shipment of a 2,000-tonne parcel last week drew little interest compared with previous sales tenders in February, traders said.

“I understand that the some Chinese suppliers and traders may try to offload their stocks as soon as possible as they fear that the BD prices may drop further,” a trader said.

BD prices have raced ahead of the derivative butadiene rubber (BR) prices, wiping out the margins of BR producers.

In the month of February, feedstock BD prices averaged $3,800/tonne CFR NE Asia, higher than the average BR values of $3,700/tonne CFR NE Asia, according ICIS data.

BR has to be priced $600-700/tonne higher than BD for BR producers to generate any margin, industry sources said.

“Our buying idea for March shipment of BD is $3,350/tonne CFR NE Asia as the BD prices were higher than the BR prices in February, and our margins were negative,” a major Korean SR producer said.

The downstream SR producers have seen their margins being eroded or wiped out by escalating BD costs, which hit $4,000/tonne CFR NE Asia in early February.

“We could not absorb the high BD costs and cannot continue to operate at a loss, so a lower BD price helps to ease the costs pressure,” a BR producer said.

To stem their losses and regain their margins, several downstream SBR and BR producers in China, Japan, South Korea and Taiwan have cut production.

BST Elastomers of Thailand is the latest to join the growing list of SR makers cutting output in response to high BD prices. The Thai company plans to shut its 55,000 tonne/year BR plant in Map Tha Phut from 15-28 March.

Other BR and SBR producers that have cut production include TSRC-UBE, Huayu Rubber, Shanghai Gaoqiao and Fuxiang Chemical in China, TSRC of Taiwan and LG Chem and KKPC of South Korea.

BR and SBR are used in the manufacture of tyres for the automobile industry.

($1 = €0.76 / $1 = CNY6.31)

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

By: Helen Yan
+65 6780 4359

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