FocusAsia BR makers mull further production cuts on rising BD cost

23 January 2013 06:01  [Source: ICIS news]

By Helen Yan

BR is used in the production of tyres for the automotive industry.SINGAPORE (ICIS)--Butadiene rubber (BR) producers in Asia are inclined to further cut output if feedstock prices continue to shoot up and erode their margins, market sources said on Wednesday.

A number of BR makers in South Korea and China are operating their facilities at reduced capacity of 50-70%, largely because of weak demand, with the spike in the cost of raw material butadiene (BD) compounding their problems, they said.

Spot BD offers for second-half February shipments were at $1,900-1,950/tonne (€1,425-1,463/tonne) CFR (cost and freight) NE (northeast) Asia, with talks that some producers are looking at hiking their offers to $2,000/tonne CFR NE Asia in anticipation of increased buying interest in the second half of February after the week-long Lunar New Year holiday in China.

The key China market will be closed on 9-15 February, and trading activities usually slow down at least a week or so prior to the holiday.

BD prices have been on an uptrend since end-November 2012, gaining an average of 23.8% based on last week’s assessed price of $1,820/tonne CFR NE Asia, ICIS data showed.

“We are seriously considering cutting the operating rate or shutting down our BR plant if the BD price continues to go up, while BR rubber prices are not moving up in line with the feedstock costs,” a South Korean BR producer said.

On 17 January, BR prices were assessed at an average of $2,450/tonne CFR NE Asia, up $50/tonne week on week, but were unchanged from 29 November 2012. During this one-and-a-half month period, BR prices moved at a range of $2,300-2,500/tonne, according to ICIS.

“There will be a strong resistance if BD prices rise up to around $2,000/tonne CFR NE Asia if the rubber prices do not go up accordingly," another  major BR producer said.

BR, which is used in the production of tyres for the automotive industry, must be priced at least $700/tonne higher than BD for BR makers to break even. Taking into account the current BD offers, the BR-BD price spread has thinned down to around $500/tonne.

Demand for BR has been sluggish amid the global slowdown, preventing producers from raising their prices above $2,500/tonne CFR  NE Asia, industry sources said.

"The downstream BR makers will run at an average of 50% of their capacities this year in 2013 in view of the weak global market,” said a China-based BR maker.

Some BR producers are considering lowering the run rates at their facilities some more, while others may decide to shut plants in February, market sources said.

“We will certainly seriously consider cutting the operating rate of our BR plant if BD hits $2,000/tonne CFR NE Asia,” said a company source at LG Chem.

The South Korean producer runs a 180,000 tonne/year BR plant at Daesan that is currently running at full capacity.

Kumho Petrochemical Co (KKPC), another South Korean producer, is running its 330,000 tonne/year BR facility at Yeosu at 60-70% of capacity, said a company source.

Should BD prices continue to increase, KKPC may further cut production, the source said.

In China, Shandong Huamao New Materials is operating its 100,000 tonne/year BR plant in Shandong province at 50% of capacity. TSRC-UBE (Nantong) Chemical Industrial, meanwhile, will conduct maintenance at its 72,000 tonne/year BR plant in Jiangsu province in February, because of weak market conditions, a company source said.

($1 = €0.75)

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

By: Helen Yan
+65 6780 4359

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