FocusConstruction, tyre, glass industry demand showing cracks

23 May 2012 13:44  [Source: ICIS news]

By Janos Gal

Construction, tyre, glass industry demand showing cracksLONDON (ICIS)--Slowing tyre sales, low epoxy resins and polycarbonate (PC) demand and the closure of several glass furnaces in Europe may be the first signs that all is not well for the European chemical industry.

So far during the second quarter of 2012, truck tyre sales have fallen by up to a third compared with the same period last year, while small vehicle and passenger car tyre sales have dropped by as much as 15%, industry experts said on Wednesday.

The main reason for the drop in tyre sales is that high feedstock butadiene (BD) costs have led to higher styrene butadiene rubber (SBR) prices, which in turn increased tyre prices at retailers.

As a result, many consumers have been putting off replacing tyres while others have given up driving altogether because of high fuel prices. In addition, less trade between European countries means less truck journeys, which results in fewer worn tyres that need replacing.

The tyre industry consumes 70% of SBR output.

From February to April, the price of 1500 grade SBR increased by €210-235/tonne ($266-297/tonne), but declined by €45-60/tonne in May. The May monthly contract price of 1500 grade SBR is €2,690-2,750/tonne free delivered (FD) northwest Europe (NWE).

The price of 1723 grade SBR increased by €195/tonne from February to April, but decreased by €45/tonne in May to reach €2,450-2,500/tonne FD NWE. The price of 1783 grade SBR followed the same price trend and settled at €2,400-2,450/tonne FD NWE.

The spot prices of 1500 grade SBR prices have fallen drastically in the past two weeks, from €2,600-2,700/tonne FD NWE to €2,400-2,500/tonne FD NWE.

The sharp decline in prices is a result of lower feedstock costs and weak demand from tyre manufacturers that have retreated to the sidelines in expectation of further price drops.

The fall in tyre sales has forced many tyre makers in Europe to lower output. One of them is Michelin, which has cut shifts at its German plant in Bad Kreuznach. Italian and French tyre producers are also considering to cut, or have already cut, working hours in an effort to reduce output.

Other industries are showing signs of a slowdown as well.

Several flat glass manufacturing furnaces in the UK, Belgium and Italy have been mothballed or closed down because downstream demand is so weak. Flat glass is used in the construction and automotive industries.

One of the furnaces that closed in mid-April is owned by Pilkington in the UK. The second furnace closed down in February in Belgium and the third in March in Italy, both owned by Asahi Glass. The companies said they had to close them because of weak demand from the construction and solar energy sector.

Soda ash demand, a raw material for glass production, is balanced to long and soda ash producers say the closures have not affected demand so far because these furnaces were old and they needed to be replaced with more efficient ones.

However, glass producers said that demand is considerably lower than last year, especially from the construction sector, and this is not expected to change this year.

In 2012, the best-performing soda ash derivative market is the packaging glass sector where demand is mainly driven by major sporting and public events, such as the Queen’s Diamond Jubilee celebrations in the UK or the Euro 2012 football tournament, during which glass bottle sales go up.

The PC sector, another major supplier to the automotive and construction industries, is also cooling. According to market participants, most PC producers are running their plants at about 70% capacity, which is below average. This was contradicted, however, by a large producer which said that 70% utilisation rate is pretty good and there is nothing that indicates that demand is slowing.

However, feedback from PC buyers was different. They said that the PC market is long and suppliers are keen to offer lower priced lots to maintain sales volumes. There has also been talk of imports from Asia and the Middle East, where competitively priced material can be purchased.

Demand for PC from the southern European automotive sector is especially weak and the volatility in the financial markets and the euro debt crisis is making things worse, several car-part suppliers said.

Buying interest for PC from the construction sector, similarly to the soda ash market, is down. This is especially worrying because the second quarter is the peak season for PC consumption, sources said.

Sales in the epoxy resins industry that supplies the automotive, wind energy and construction sectors have contracted as well. According to several industry sources, demand for epoxy resins in the second quarter is down by about 10-20% compared with the same period last year.

“Considering that this is the peak season for the industry, this is very bad news for us,” an epoxy resins buyer said.

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By: Janos Gal
+44 208 652 3214

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