OUTLOOK ’15: US SBR market expecting better demand, less imports

HOUSTON (ICIS)–The US styrene-butadiene-rubber (SBR) market is expecting slight growth in 2015 over 2014 on cautious optimism that downstream tyre demand will improve and that imports will slow.

The tyre market accounts for 75-80% of SBR end-use applications, and downstream demand for passenger and light truck tyres in 2014 has been viewed as stable-to-lacklustre as consumers are driving less miles and waiting longer to replace their tyres.

However, declining values for upstream crude oil have weighed down prices in many downstream markets, including fuels such as gasoline.

“Lower gasoline prices should encourage more driving, which should increase demand for replacement tyres, although this will probably not show up until Q2,” an SBR trader said.

Additionally, the automotive industry continues to see steady growth in sales, driving demand for new tyres.

The SBR market is also expecting some rebounding in other downstream sectors that saw lower demand in 2014.

“The agriculture market (ag tyres) was down as much as 30% in North American markets in 2014, driven by a very harsh winter, droughts and a soft market,” an SBR producer said. “Off-the-road tyres were also down in North America with mining’s continued decline, which in turn hurt the conveyor belt industry.”

The source said that any pick-up in the agriculture and off-the-road construction and mining industries will help in small ways toward improvements in 2015.

Meanwhile, the market continues to monitor the amount of SBR imports coming into the US, which market sources said had reached record levels in the first half of 2014.

SBR suppliers from other regions had cost advantages of obtaining less expensive feedstock butadiene (BD), leaving domestic producers unable to compete.

“Rubber imports will continue to make their way into the US market one way or another,” an SBR producer said. “The question is if they will be as high as what we saw during the first half of 2014.”

The source added: “From my point of view, I don’t think so, considering that the gap in raw material costs is not as wide, and it won’t be at least for the first half of 2015.”

Still, a distributor believed that the US SBR market can expect to continue seeing lower import prices.

“The dollar is strong,” the source said. “The ruble has collapsed, and Russia makes a lot of SBR. Europe and China demand are weak, and Brazil is a mess.”

The distributor added: “A lot will depend on cross regional price differences for BD. I don’t see any room for domestic SBR producers to improve margins, so the price will follow raw material prices.”

In the meantime, the industry awaits for the final determinations of the countervailing duty and antidumping duty investigations on Chinese imports of certain passenger vehicle and light truck tyres.

In late November, the US Department of Commerce issued a preliminary determination that some tyre producers in China were receiving countervailing subsidies of 12.50-81.29% and began requiring tyre importers from the region to make cash deposits based on those preliminary rates.

The department is scheduled to announce its final determination in the spring, also when the US International Trade Commission (ITC) is expected to complete its investigation on whether the domestic industry is being harmed by those Chinese tyre imports.

Separately, the commerce department and ITC are also conducting antidumping duty investigations on those Chinese tyre imports, with preliminary determinations expected in January.

Some participants in the US synthetic rubber and tyre markets felt that imposing duties on Chinese tyre imports would allow domestic production to increase.

“I think that this measure is a step in the right direction,” an SBR producer said. “What the US is doing is leveling the field for domestic producers to compete against China. It has been proven in different industries, not only in tyres, that subsidies are a common practice of Chinese producers.”

Others said that the decision would not have a significant impact on overall import levels.

“I don’t expect tariffs on China-made tyres to be a major boon to US SBR producers,” a distributor said. “Most likely, production for those types of import tyres will shift to other low-cost producing countries.”

Still, an SBR importer from Korea felt that the US government would want any imports to come from countries that “play by the rules”.

Regardless, tariffs on Chinese tyre imports would not only affect the tyre companies in China, but also the raw material producers there, which in turn, would impact the US.

“They would then try to push more rubber in US market as the domestic market would not be able to support the demand,” a tyre maker said. “This would create the pressure both on the local [upstream BD] suppliers and the rubber producers to compete with Chinese imports.”

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