OUTLOOK '14: US SBR expecting slow recovery as tyre demand picks up

02 January 2014 16:00  [Source: ICIS news]

HOUSTON (ICIS)--While the slow recovery in the replacement tyre market has made the US styrene-butadiene-rubber (SBR) industry cautious about the outlook for 2014, some believe there is room for optimism with demand slowly picking up as the economy continues to improve.

US SBR market participants have said the outlook for the upcoming year is muted, but the industry is expecting some growth based on recovering economics.

"In 2013, we had growth but some demand that never really materialised," a buyer said. "What we're predicting is for 2014 to be a carbon copy of 2013."

"There are positive forces for sure happening, but they're not going to happen very fast," a seller said.

In the US, the tyre market makes up about 75-80% of SBR end-use applications, and the latest forecast from the Rubber Manufacturers Association (RMA) calls for a 4% year-on-year increase in tyre shipments to 297m units in 2013 and a nearly 2% uptick in 2014.

"A declining unemployment rate, a rebound in housing, increases in vehicle sales and vehicle miles travelled, as well as other macroeconomic factors are expected to account for the 2014 increase," the US-based industry group said.

Boost in tyre sales
Tyre sales from new auto purchases have been increasing since 2010, when passenger tyre shipments shot up 35% from 24.6m units in 2009 and light truck tyre shipments increased by nearly 30% from 2.8m units.

The RMA estimates that original equipment passenger tyre shipments will rise by about 7% to 43m units in 2013 and another 3% in 2014, while those for light trucks will increase by 5% to 4.5m units in 2013 and another 2% in 2014.

However, new tyres make up only a small portion of US tyre sales, with replacement tyre sales accounting for about 80% of the market.

While the RMA projects that shipments of replacement tyres in 2013 will reach 200m units for passenger cars and 29m units for light trucks, the figures are just now reaching 2010 levels of 200.6m and 28.7m units, respectively.

For 2014, the trade group is only estimating a 1% uptick of 2m units for passenger cars and below a 2% increase of 600,000 units for light trucks.

"The replacement tyres market has not done as well as [the industry] hoped it would have been," an SBR producer said. "The issue here is, when is it going to pick back up? We need to see some more improvement."

Some market participants have expressed optimism because of pent-up demand for replacement tyres, and 2014 is when the typical tyre replacement cycle of four years will take effect from the post-recession boom in new auto sales in 2010.

Still, they noted that despite the growth in the new vehicle market, replacement tyre growth has lagged in the recent years as consumers are driving less miles and waiting longer to change out their tyres.

Shift to high-performance products
There are two major types of SBR, with a shifting trend from emulsion (E-SBR) in conventional tyres to solution (S-SBR), which uses more feedstock butadiene (BD) and is considered to improve performance, safety and fuel efficiency.

The growing trend of tire labelling is creating demand for more high-performance products, and the industry expects to see more silica and S-SBR in tyres in the future, a US tyre maker said.

However, this will be at the expense of producers and buyers of E-SBR and other products, the manufacturer added.

"E-SBR has been very tough," said Roxana Bauza-Petrovic of the International Institute of Synthetic Rubber Producers (IISRP). "S-SBR right now is growing, and that's something good because we have a lot of capacity coming in."

According to the US-based trade organisation, global S-SBR capacity is expected to expand by 235,000 tonnes by the end of 2013 – with 110,000 tonnes already on-stream in the third quarter and 125,000 tonnes pending  for  the fourth quarter.

Capacity is expected to increase by another 300,000 tonnes by the end of 2014 and an additional 200,000-250,000 tonnes in 2015-2016.

On the other hand, only 270,000 tonnes of additional E-SBR has been announced to come on-stream, the IISRP said.

Some tyre makers in the US and the EU have chosen to focus on higher-end products made from S-SBR while ceding the low-end market that relies on E-SBR to cheaper Asian imports.

Continuing challenges
While tyre and rubber product sales are indicating an uptick in consumption, some US market participants question whether demand will justify the global capacity increases.

In August, US tyre and synthetic rubber producers surveyed said they were operating at reduced rates, with overall production at about 60% of capacity, and expect to continue doing so through the end of the year.

Additionally, US-based Lion Copolymer announced in early December that it will temporarily close its SBR plant in Baton Rouge, Louisiana, by February.

"Declining market conditions for domestically produced replacement tyres and conveyor belting, global over-capacity of SBR supply and volatility in key raw materials have resulted in unfavourable SBR market conditions in the recent years," the company said.

Market participants are still waiting to see how this news will affect supply and demand fundamentals.

"Right now we have an oversupply in North America because we still have oversupply in Asia and we have oversupply in the EU," an SBR producer said. "Lion will tighten supply, but it may not be enough."

Additionally, elevated US import tariffs on tyres from China expired in September 2012, resulting in a surge of tyre imports from the country.

"The global competition that we face makes it a very difficult market from a cost standpoint," an SBR producer said. "We have to compete with those large China plants and Asian plants."

"The other part is the age of our plants is quite different from the age of some of our competition, so what it means is we have to be extremely cost-conscious in our production plants because there will be additional capital to keep this World War II Euro plant running to compete with maybe a shiny new plant in eastern China," the source added.

Producers said monomer cost differential is another challenge if they have to compete with Asian producers who have feedstock cost advantages.

Still, global tyre companies are investing about $4bn in projects in North America, which further supports that the North American tyre industry is healthy and that the overall economy is recovering and globally competitive.


US SBR price graphic

By: Tracy Dang
+1 713 525 2653

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