FocusAsia BR dips below $3,000/tonne; may extend falls on weak BD

08 June 2012 06:17  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS)--Spot butadiene rubber (BR) prices in Asia may extend falls after dipping below $3,000/tonne (€2,370/tonne) this week, in line with declining values of feedstock butadiene (BD), amid weak demand and ample supply, industry sources said on Friday.

In the week ended 7 June, BR prices were assessed at $2,900-3,000/tonne CFR (cost and freight) northeast (NE) Asia, down by $500/tonne from about a month ago, according to ICIS.

BR prices have been tracking falls in BD values, which shed $600/tonne since early May to $1,850-1,900/tonne CFR NE Asia in the week ended 1 June, ICIS data showed.

“There may still be room for the BR prices to drop further in June,” a trader said, citing the current wide spread between BR and BD prices.

Taking the latest price assessments by ICIS, the BR-BD price spread is at $1,050-1,100/tonne – way above the $600-700/tonne minimum required for BR producers to generate margins.

Downstream tyre makers are expecting BR prices to fall to around $2,600/tonne CFR NE Asia.

Apart from the plunging feedstock BD prices, weak demand and ample supply also weighed on BR prices, industry sources said.

Buying sentiment is being dampened by the ongoing eurozone debt crisis, a fragile US recovery and a slowing down of the economies in China and India.

Major downstream tyre producers have cut operating rates to around 80% of capacity, while small- and medium-sized tyre makers have implemented a deeper cut in production, with current run rates at around 50-60% of capacity, given the uncertain global market outlook.

Major BR producers in Asia are currently under mounting pressure to clear their surplus stocks as demand has not only weakened, but they are also facing strong competition from European, Russian and Iranian suppliers.

“Some BR producers have high inventories and dropped their prices as they have to clear their surplus stocks,” a trader said.

“We can get lower offers from other suppliers in Europe and are expecting BR prices to drop lower below $2,600/tonne CFR if the feedstock BD prices fall further,” a downstream tyre producer said.

To offset the slump in demand, some major BR producers have reduced their operating rates.

Major South Korean BR producer Korea Kumho Petrochemical Co (KKPC) has further reduced operating rates at its  350,000 tonne/year BR plant at Yeosu to 60% in June from about 70-80% in May.

China’s Huayu Rubber, on the other hand, has kept its two BR units with a combined capacity of 160,000 tonnes/year in Shandong province shut. One of the two 80,000 tonne/year unit has been down since 7 January because of poor market conditions. The second unit was taken off line on 14 May.

“If the feedstock BD prices were to rebound in July, then it is possible the BR prices may bottom out then,” a trader said.

($1 = €0.79)

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

By: Helen Yan
+65 6780 4359

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