Price and market trends: Asia BD spike to halt as rubber makers mull deeper output cuts

01 March 2013 09:09  [Source: ICB]

Spot butadiene (BD) prices in Asia may soon stop rising, with demand expected to turn weaker as downstream synthetic rubber makers are considering cutting production further, industry players said on 21 February.

BD racked up 24% in gains since the start of the year to $2,050/tonne (€1,538/tonne) CFR (cost and freight) NE (northeast) Asia on 15 February, according to ICIS.

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Offers had gone up to as high as $2,200/tonne NE Asia in mid-late February following recent deals done between producers and traders at $2,100/tonne CFR NE Asia, market sources said.

BD's price spike, however, has been largely driven by speculative trades and not underpinned by end-user demand, as downstream rubber plants have been operating at reduced capacity, industry sources said.

NATURAL RUBBER FALLS

"We are hearing BD offers now at below $2,050/tonne CFR NE Asia as there is uncertainty in the market, given that natural rubber [NR] prices are falling," a Chinese trader said.

NR and synthetic rubber are substitutes for each other as a raw material in the production of tyres for the automotive industry, with their prices tending to move in tandem. On 20 February, NR SMR 20 at the Malaysian Rubber Exchange closed at $3,030/tonne FOB Malaysia, down by about $100/tonne from 6 February.

"NR prices are falling and are likely to drop lower, so there is some concern about its impact on the synthetic rubber prices," a synthetic rubber maker said.

Spot butadiene rubber (BR) prices were last assessed on 14 February at an average of $2,450/tonne CFR NE Asia, unchanged for the fifth consecutive week but down by $50/tonne from the start of the year, according to ICIS.

BR producers are reeling from negative margins because of high costs of feedstock BD that they could not pass on to their customers, given continued weakness in the automotive sector amid the global economic slowdown.

Supply-demand fundamentals also do not support high BD prices, industry sources said.

"BD supply is also ample, with cargoes from southeast Asia, South Korea and Latin America available in the market, another Chinese trader said. "The tanks are full in March and traders are trying to offload their BD stocks and dropping their prices."

Asia butadieneAlthough there are signs of recovery for the automotive industry in China and the US, other regions including Europe and India continue to perform poorly.

Tyre makers in Asia have also been operating their plants at reduced rates because of the weak automotive industry. A major Japanese tyre maker is running its facility at 90% of capacity in the first quarter, a source at the company said.

A number of major downstream synthetic rubber producers in China, South Korea and Taiwan plan to either further reduce output or shut down their plants for maintenance to stem production losses.

"Because of high feedstock prices which have eroded our margins, we have to consider adjusting our operation ratio in March by around 10%," a northeast Asian synthetic rubber producer said.

MAINTENANCE SHUTDOWNS

Major synthetic rubber producer Korea Kumho Petrochemical Co (KKPC) will shut down its 120,000 tonne/year butadiene rubber (BR) unit in April for a two-week maintenance.

In China, Huayu Rubber is currently operating its 160,000 tonne/year BR plant in Shandong province at 50% of capacity and may continue to run at this reduced rate in March.

TSRC-UBE (Nantong) Chemical Industrial's 72,000 tonne/year butadiene rubber (BR) plant, on the other hand, is currently shut for a month-long maintenance. The unit was taken off line on 4 February.

In Taiwan, the 100,000 tonne/year styrene butadiene rubber (SBR) plant of Taiwan Synthetic Rubber Corp (TSRC) in Kaohsiung is due to shut in April for three weeks of maintenance.


By: Helen Yan
+65 6780 4359



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