Asia SBR may fall on poor demand amid slowing China economy

Focus story by Helen Yan

SINGAPORE (ICIS)–Spot styrene butadiene rubber (SBR) prices in Asia may come under pressure in the second quarter because of weak demand amid the continuing economic slowdown in the key China market, industry sources said on Friday.

Surplus stocks of natural rubber (NR) – a substitute product for SBR in tyre production – in China and price weakness in feedstock butadiene (BD) will also weigh on the SBR market, they said.

Over the past two weeks, non-oil grade 1502 SBR prices have been stable at $1,750-1,800/tonne CIF (cost and freight) China, according to ICIS data.

Demand has been subdued in China as the downstream tyre makers have  mostly been  keeping lean inventories, with purchases restricted on a need-to-basis,  market sources said.

It does not help that prices of natural rubber, which is in abundant supply, are also on a downtrend, industry sources said.

“There is just too much natural rubber in China which will spur the Chinese tyre makers to switch to natural rubber and this will weigh on demand for SBR and pressure the SBR prices downwards,” a Chinese SBR producer said.

SMR20 tyre grade NR physical prices fell to $1,750/tonne FOB (free on board) Malaysia on 30 April at the Malaysia Rubber Exchange, down by  $160/tonne since 1 April.

“If natural rubber prices continue to remain soft, this will exert downward pressure on SBR prices also,” the Chinese SBR producer said.

Synthetic and natural rubbers are rival raw materials in the production of tyres for the automotive industry.

Tyre makers in emerging countries enjoy more flexibility in raw material substitution and formulation changes,  and could switch to using more NR given its price advantage, market sources said.

In the key China market, distributors and downstream tyre makers are keeping lean inventory and are generally cautious as the Chinese economy continues to show signs of weakness.

In the first quarter of 2014, China’s GDP grew 7.4%, down from 7.7% in the previous quarter. In April, improvement in the country’s manufacturing activities had been minimal based on a 50.4 reading in its purchasing managers’ index (PMI), up from 50.3 in March.

Meanwhile, SBR’s price direction is also likely to be influenced by the volatile price movement of feedstock BD, market sources said.

BD prices fell to $1,250-1,300/tonne CFR (cost and freight) northeast (NE) Asia on 25 April, down by $100/tonne from the previous week, ICIS data showed.

About 150,0000 tonnes of new capacities in China coming on stream in the near term are expected to continue weighing down on BD prices in the second quarter, market sources said.

“If the feedstock BD price continues to weaken and drop below $1,200/tonne CFR NE Asia, this will weigh down the SBR price,” a rubber distributor said.

BD comprises about 70% of the composition and production costs of SBR, market sources said.

Notwithstanding the downward price pressures, SBR producers are keeping their offers stable at $1,850-1,900/tonne CIF China for May shipments of non-oil grade 1502 SBR.

“SBR producers are running their plants at reduced rates and the operating rate of SBR plants in China average 60% capacity, which means SBR prices are unlikely to drop significantly because of limited SBR supply,” a downstream tyre maker said.

SBR producers may not be inclined to lower their prices as they would want to recover their margins, as they did not do well last year, market sources said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections