Price and market trends: Asia butadiene rubber gains to be tempered by buyer resistance

15 March 2013 09:25  [Source: ICB]

Falling natural rubber prices and subdued demand from the auto sector stymie potential butadiene rubber price gains

Asia's butadiene rubber (BR) producers may find difficulty in hiking prices for March shipments because of subdued demand and amid falling values of substitute product natural rubber (NR), industry sources said.

Spot BR offers at $2,800-2,900/tonne (€2,156-2,233/tonne) CFR (cost and freight) northeast (NE) Asia as of 4 March represent a $250/tonne increase from the price assessed by ICIS on 28 February. Buyers are expected to pose stiff resistance to the steep price increase, market sources said.

Prices were at $2,550-2,650/tonne CFR NE Asia, up by $150/tonne from mid-February, according to ICIS.

BR producers hiked their offers, hoping to recoup margins that are being eroded by the relentless surge in the cost of feedstock butadiene (BD), market sources said.

In the week ended 1 March, BD prices averaged $2,050/tonne CFR NE Asia, up by about 16% or $400/tonne from 4 January.

However, demand from the downstream tyre makers remains subdued amid the uncertain global market outlook, with Europe still mired in a debt crisis and with the latest data out of China showing slowing manufacturing activities in February.

"It is the cost-push factor that is driving up the BR prices. Demand is subdued and offers of BR at above $2,700/tonne CFR NE Asia are not workable as it is difficult to pass on the costs to the customers, given the current weak market conditions," a major tyre producer said.

Falling natural rubber (NR) prices have also further dampened sentiment and added to the woes of the BR producers.

On 4 March, SMR 20 NR was trading at around $2,820/tonne FOB (free on board) Malaysia at the Malaysian Rubber Exchange, down by $310/tonne from 6 February.

NR and BR are substitutes for each other in tyre production for the automotive industry and their prices tend to influence each other.

Ample NR inventories in the warehouses in China are expected to weigh down on NR prices, and this will have an impact on the synthetic rubber prices as well, industry sources.

About 320,000 tonnes of rubber are sitting in warehouses in Qingdao, China, a rubber trading hub in eastern China, sources said.

If automobile sales grow more slowly than forecast, demand from tyre makers will also weaken accordingly, and will invariably put a cap on the synthetic rubber price increase, industry sources said.

China's auto sales rose by 4.3% in 2012 to 19.3m vehicles, about half of what was expected by the China Association of Automobile Manufacturers (CAAM). The CAAM expects sales to climb by 7% in 2013.

"Tyre makers are adopting a cautious stance and will not lock in large volumes of BR at prices atbove $2,700/tonne CFR NE Asia, given the uncertain market outlook," the tyre producer said.

By: Helen Yan
+65 6780 4359

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