FocusAsia BR dips 4% from mid-Mar; may extend falls on weak demand

20 April 2012 07:05  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS)--Asia’s butadiene rubber (BR) prices have shed 4% from mid-March and look set to fall further given waning demand from downstream tyremakers, with car sales tapering off amid the global economic slowdown, industry sources said on Friday.

Spot prices were assessed at $3,650-3,750/tonne (€2,774-2,850/tonne) CFR (cost, freight and insurance) northeast (NE) Asia in the week ended 19 April, down by $150/tonne since 15 March, according to ICIS.

Production for automotive tyres – the main downstream for BR – have been cut in view of the poor global market outlook and a slowing Chinese economy.

China is the top car market in the world but its automotive sales this year are expected to significantly slow down. Some industry sources said that domestic car sales in in the country this year may not increase by more than 5%, much lower than the 8% official growth projection of the China Association of Automobile Manufacturers (CAAM).

Total vehicle sales in China fell 3.4% year on year in the first three months of 2102, according to CAAM. For the whole of 2011, its car sales rose just 2.5% to 18.51m compared with an increase of more than 32% in 2010, based on official industry data.

Auto sales in the world's second biggest economy have been slowing down since last year after the government has rolled back incentives, and some of its cities imposed tough restrictions on car numbers to ease chronic traffic congestion and pollution.

Consequently, China's domestic tyre sales have sharply declined, along with its tyre exports Europe and the US amid the eurozone debt crisis, thereby affecting BR consumption, industry sources said.

“We have no orders for BR for the past two months and have several thousand tonnes of stocks to clear,” a trader said.

Falling natural rubber prices also exerted downward pressure on BR prices.

SMR 20 natural rubber (NR) prices fell below $3,600/tonne this week at the Malaysian Rubber Exchange, down by about $150/tonne since early April.

NR and BR substitute each other in tyre production, and their prices tend to move in tandem.

Asian BR makers said they do not expect the market to improve significantly this year, as the key China market has been showing signs of weakness.

The Chinese government has revised down its GDP growth target to 7.5% this year from an 8% target that was kept for seven years, as exports growth is slowing down. Most countries in Asia rely on exports as an engine of growth and China is no exception.

In March, the country’s overall exports grew at more moderate pace of 8.9% from 18.4% in February, official data showed. Imports, on the other hand, grew at only 5.3% in March compared with 39.6% in February.

China is a major importer of petrochemicals in the region, but its end-products are mainly exported.

“The warehouses in Qingdao are well-stocked [with BR] and traders are looking to offload them, but demand has been very weak and may likely remain soft in the second quarter,” a trader said.

In view of the poor demand and in a bid to stem the price decline, several BR producers are cutting production.

“The downstream tyre makers are running at 50-60% of their capacities as demand for tyres has fallen sharply,” a Chinese BR producer said.

Several BR producers including Kumho Petrochemical (KKPC), LG Chem, TSRC and Sinopec Shanghai Gaoqiao have reduced their operating rates.

($1 = €0.76)

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

By: Helen Yan
+65 6780 4359

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