FocusAll eyes in the US butadiene market are on Asia

27 February 2013 18:32  [Source: ICIS news]

All eyes in the US butadiene market are on AsiaHOUSTON (ICIS)--After the March contract settlement this week, all eyes in the US butadiene (BD) market going forward are on Asia and what’s happening with the rubber and tyre markets.

“The price increase in March was not unexpected,” said one market source. But given the high BD inventories following the layoff for the Chinese Lunar New Year, “it’s hard to get ultra bullish about any further increases in BD prices going forward," the source said.

Another market participant said that the key for BD prices in Asia going forward will be how derivatives such as butadiene rubber (BDR) and styrene butadiene rubber (SBR) respond.

“Unless we see some demand pull, it’s probably going to be difficult for BD to get a whole lot higher,” the source said.

“We’re watching the Asian market very carefully to see if there’s real demand from the rubber producers,” another source said.

There’s also concern that Asian producers could cut production even further if BD prices continued to rise.

As previously reported, falling natural rubber (NR) prices have dampened buying sentiment as downstream synthetic rubber makers, the largest consumers of BD, have mostly stayed on the sidelines to wait for a clearer direction. NR and synthetic rubber (SR) are substitutes for each other in the production of tyres for the automotive industry, and their prices tend to move in tandem. Last week, SMR 20-grade NR prices at the Malaysia Rubber Exchange fell to $2,940/tonne (€2,264/tonne) FOB (free on board), down by $190/tonne from 6 February.

The downstream BR prices currently average $2,550/tonne CFR (cost & freight) NE Asia, and attempts to raise the BR prices to more than $2,700/tonne CFR NE Asia have met resistance, given the lacklustre global automotive industry. 

Meanwhile, Chinese domestic BD prices rose to yuan (CNY) 14,600-15,200/tonne ($2,336-2,432/tonne) DEL (delivered) during the week, up by CNY600-900/tonne from 8 February, before the Lunar New Year holiday on 9-15 February. 

Of course, what’s pushing rubber prices down is softness in the world tyre market. Several market sources said that replacement tyre sales are down because of weakness in the global economy.

“We are definitely hearing that consumers are choosing not to replace tyres because of uncertainty about the economy,” one source said.

Others said that concerns over the US budget crisis – the so-called sequester – are also eroding consumer confidence and compelling consumers to delay purchases.

Weak auto sales are depressing new tyre sales, although auto sales in the US continue to rise. Analysts said this week that February sales are expected to be in the 15m-15.5m annual range. While the current pace is below pre-recession US sales volume, it is much higher than the 10.4m new vehicles sold in the US in 2009, when sales were the lowest they’d been since the early 1980s and GM and Chrysler filed for bankruptcy.

But in other parts of the world, auto sales are a very different story. In Europe, sales in 2012 fell by the most in two decades. In January, things weren’t much better, with sales down 15% in France to their lowest level since 1997. Italian sales were down 17.6%, while Spain saw only single-digit declines thanks to subsidies.

($1 = €0.77; $1 = CNY6.23)

Reporting by Mark Yost

Author: ICIS staff

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