US tyre, SBR firms see reduced capacities through Q4: sources

HOUSTON (ICIS)–US tyre and synthetic rubber producers surveyed are operating at reduced capacities and expect to continue doing so through the end of the year, sources said on Wednesday.

One tyre producer has shut down two production lines, while another synthetic rubber producer has closed one of its lines. Overall, rubber and tyre production in the US is at about 60% of capacity, sources said.

“We’ve had one (SR) line shut down since June and will keep it offline through December,” one source said.

“The demand is simply not coming back,” said another source. “So we’ve had to cut back production.”

Production managers meeting this month to plan fourth-quarter output have all said they plan to operate at reduced capacities through the end of the year. One producer said it was controlling tyre inventory by both reducing production at its US facilities, as well as limiting the number of tyres it imports from overseas plants.

A lack of tyre demand worldwide is vexing the tyre, synthetic rubber and feedstock industries. Last month, Goodyear reported second-quarter earnings and said it had sold 1.6m fewer tyres in North America in the first six months of the year than it did a year ago. One tyre executive who said he looks at tyres whenever he walks through mall and restaurant parking lots said, “I’ve seen more bald tyres and exposed cords this year than I’ve seen in 30 years in this business.”

The lack of demand for tyres has rippled back through the supply chain, driving down the price of both styrene-butadiene-rubber (SBR) and butadiene (BD).

The US contract price for non-oil grade SBR 1502 has dropped from a 12-month high of 123 cents/lb ($2,712.66/tonne, €2,034/tonne) in April to 85.5 cents/lb in August. The current US spot range for SBR 1502 is 60-65 cents/lb and one source said they had been offered a distressed cargo of off-grade material for about 35 cents/lb, less than the monomer cost.

SBR feedstock BD has fallen, as well. A year ago, the US contract average price for BD was 90 cents/lb. It peaked in 2013 at 84 cents/lb in March and April before dropping by nearly 50% to 43.5 cents/lb in August. Some sources had expected prices to drop by another 3-5 cents/lb when the September contract is negotiated, but now sentiment seems to be that prices may firm by a few pennies on significantly reduced capacity.

Even if the production cuts do work and SBR and BD prices firm by a few cents in the next month or so, industry sources said the fundamental problem remains.

“Demand is simply not there,” one source said. “And no one’s really sure when it’s going to come back.”

Indeed, when prices for both commodities began to drop, sources had expected that the market, which is driven by consumer confidence and purchasing power, would firm in the second half of 2013. Now, most industry sources say that due to economic slowdowns in Asia and Europe and a still-struggling US economy, they do not see demand coming back before second quarter of 2014.

Major US producers of SBR include Ashland and Negromex as well as tyre makers such as Goodyear and Firestone. Major US producers of BD include ExxonMobil, LyondellBasell, Shell and TPC Group.

($1 = €0.75)