OUTLOOK ’14: Europe SBR market expected flat on subdued demand

By Samuel Smith

LONDON (ICIS)–The European styrene butadiene rubber (SBR) market is braced for flat performance in 2014, as passenger vehicle and light truck tyre replacement sales look set to remain subdued next year due to cash-strapped consumers holding back on purchasing new cars and driving fewer miles.

The monthly contract price of 1500 grade SBR in December was €1,450-1,520/tonne ($1,986-2,082/tonne), while 1723 grade was €1,340-1,390/tonne. The price of 1783 grade was €1,300-1,350/tonne. All are on a free delivered (FD) NWE (northwest Europe) basis.

Compared to this year’s SBR January contract price, 1500 grade was down by 23% while 1723 grade fell by 25%. The 1783 grade decrease was the biggest by 27%.

Around 70% of SBR output is consumed by the tyre industry.

With weaker demand prevailing in 2013, some tyre manufacturers expressed optimism for 2014 following data released by the European Automobile Manufacturers’ Association (ACEA) stating that passenger vehicle sales increased by 5.4% and 4.7% for September and October respectively.

Light commercial and heavy commercial vehicles sales also increased over the same period. Despite these small indications of a recovery, traders and manufacturers remained realistic, with sources painting a gloomy picture for 2014 because of the stark contrast between southern and northern European tyre demand.

Pricing for main feedstock butadiene (BD) has firmed in recent months, after bottoming-out at €750/tonne FD NWE in August. BD has firmed gradually since then, rolling over in December’s monthly contract price (MCP) at €900/tonne.

European SBR producers expect BD to increase further by €100/tonne and even exceed €1,000/tonne from the start of the second quarter of 2014 due to some European crackers switching from naphtha to gas.

However, many market players said BD remains difficult to assess because of its recent volatility in Europe and especially in Asia.

As the year-end looms, market players expect January to be a crucial month in the first quarter, particularly in terms of how buyers would look to replenish current inventory levels.

Tyre and non-tyre buyers bought spot material on a ‘hand-to-mouth’ basis toward the end of December as they focus on reducing inventory. Some traders expect buyers to continue purchasing spot material at this level throughout January because of feedstock uncertainty, especially in the first quarter.

Market sources expect the first half of 2014 to be a continuation of the second-half of 2013, with possible improvement in the latter half of the year. The market is expected to rebound from a short market to a long market and back again throughout the year is expected because of global supply and demand volatility.

Some sources anticipate second-half volatility within the global SBR market due to US-based Lion’s planned closure along with India’s Reliance and Taiwan’s TSRC additional joint-venture capacity coming on stream. The joint venture between Reliance and TSRC could turn India from a net importer to a net exporter of SBR.

However, despite this additional capacity, sources expected the global market to remain structurally short. One European compounder said SBR in the Asia-Pacific region will become more self-sufficient due to additional BD production coming on stream.

One market source said further volatility within the global SBR market could lead to producer force majeure, therefore affecting BD supply and demand.

Unless there is an increase in European tyre replacement sales and consistent month-by-month passenger vehicle sales, 2014 could be a re-run of 2013. One major SBR producer said SBR is “bleak” in Europe, forecasting 2014 to be flat, maximum growth of 1-2% and little confidence in the market.

($1 = €0.73)