FocusBD, SBR eye US Memorial Day to boost driving, revive demand

24 May 2013 16:44  [Source: ICIS news]

BD, SBR eye US Memorial Day to boost driving, revive demandHOUSTON (ICIS)--To say that the US butadiene (BD) and styrene-butadiene-rubber (SBR) markets are in the doldrums would be an understatement. If there is any hope for them to firm up prices, it will be signalled this weekend with the start of the summer vacation driving season in the US, which begins with Memorial Day and lasts through Labor Day.

US BD prices have fallen by nearly 50% in the past 12 months, from a high of 146 cents/lb ($3,219/tonne, €2,479/tonne) in May 2012 to 79 cents/lb. Market expectations are that the June contract price for US BD will fall another 5 cents/lb. US SBR has also seen its price fall nearly 27% over the past year, from an average contract price of $1.62/lb to about $1.19/lb.

The reason for the decline in both markets can be summed up in one word: tyres. The global tyre market is in a severe downturn.

Goodyear reported that it sold 1m fewer tyres in North America in first quarter 2013 compared with a year ago. Most important for both BD and SBR is the replacement-tyre market, which is down because of the general economic malaise affecting Asia and Europe.

When consumer confidence is down, people tend to put off purchases of replacement tyres, which account for about 80% of the tyre market. One Goodyear executive, who conducts his own market assessment by walking through shopping mall parking lots, recently said that he has "seen more bald tyres and cord showing than I've seen in 30 years".

Those bald tyres, and sharply declining tyre sales figures, he said, tell him that consumers are delaying purchases of replacement tyres.

The one bright spot for BD and SBR producers is the US automotive market. While April sales dipped below the all-important 15m annual unit range for the first time in five months, analysts said it was a mere anomaly as automakers turned around factories for the more than 20 new vehicles they will launch this spring and summer.

Indeed, all three of the US automakers said recently that they are either adding shifts or reducing summer turnarounds to meet rising auto demand in North America. And several forecasting firms came out this week and said that they expect May US auto sales of about 15.2m annual units.

But new-car tyres only account for about 20% of the total tyre market, so robust US car sales are of little help to BD and SBR producers. Furthermore, European car sales are down by about 10% for the second year, and Asian car sales have slowed to single digits.

Many tyre analysts have written off 2013, saying that sales will not pick up before first half of 2014. But there is one last hope for the 2013 tyre market: the US summer driving season.

The period between Memorial Day and Labor Day is typically a big selling season for tyre makers. US consumers who have delayed purchasing new replacement tyres often make their purchases now - regardless of finances - because they are taking summer driving vacations.

Further helping to prime the pump for the summer tyre-buying season is US airfares, which have been rising by 2-3% every month compared with a year ago since December 2012. With airfares higher, analysts expect that more Americans will take driving vacations.

Tyre makers are hoping to capitalise on this by offering incentives that market participants say are not only more generous, but are continuing longer than normal.

"I've never seen the kind of discounts this close to the summer driving season that are being offered now," said one SBR source.

What does that tell him?

"The market's really struggling."

($1 = €0.77)

Author: Mark Yost

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