US SBR faces demand-recovery challenges through H2 amid rising costs

Author: Amanda Hay

2020/07/17

HOUSTON (ICIS)--US styrene butadiene rubber (SBR) markets will gradually recover from the demand destruction of Q2's widespread coronavirus closures well into 2021.

DEMAND RECOVERY GRADUAL
Downstream sectors will likely take several months to recover to precoronavirus levels of business in North America, which has been the hardest hit region in terms of virus spread and continues to face restrictions.

Obstacles include plant logistics and safety measures, which may limit finished goods output, especially if there is a second shutdown.

As of mid-July, most manufacturers had ramped up from their two-month shutdowns.

About 80% of SBR goes into the manufacture of synthetic rubber, largely for tyres.

Replacement tyre producers, which is about 80% of the tyre market, are said to be running at stronger-than expected rates in many cases, generally around 70-80% of their precoronavirus levels.

Producers that supply to automakers are also rebuilding inventories--some at very strong rates--although with original equipment manufacturers the pace is likely to slow as some projections do not anticipate light-vehicle sales to return to precoronavirus levels until 2023.

Market players are eyeing whether the June and July pickup in raw material demand is a function of restocking or if it is sustainable.

The balance of 2020 will be sharply off 2019 volumes as a result of Q2 tyre plant closures.

The US Tire Manufacturers Association (USTMA) projects an overall 17.8% reduction in tyre shipments from 2019.

US Tyre Shipments (in m units)

2019 2020 (April revision) % Change
Original equipment
Passenger car 46.3 35.0 -24.3
Light Truck 5.9 4.8 -18.4
Truck 6.5 4.5 -30.7
Replacement tyres
Passenger car 222.6 184.4 -17.2
Light Truck 32.5 27.3 -16.0
Truck 18.9 17.6 -7.3
Total shipments 332.7 273.6 -17.8

Source: USTMA, numbers are rounded

Non-tyre end uses for SBR are recovering more slowly.

US SBR consumption in 2020 is expected to decrease by 15% because of coronavirus, while global consumption is expected to decrease by 6%, according to the ICIS Supply and Demand Database.

“Although tyre and automakers in the US are coming back, the protection measures and weak demand are expected to cap the operating rate,” said Ann Sun, senior analyst with ICIS.

“Demand should be hampered by the concerns over second wave of coronavirus infections. Even in China, the country with the time lead in the pandemic, the tyre operating rate has not been back to normal levels.”

ANTIDUMPING CASE COULD BE BOON FOR US MARKET
A US antidumping (AD) and countervailing duty (CVD) investigation regarding imports of passenger vehicle and light truck tyres from Korea, Taiwan, Thailand and Vietnam is under way.

The US International Trade Commission (ITC) determined there is reasonable indication that the domestic tyre industry is materially injured by the imports, which are allegedly sold in the US at less than fair value and subsidised by the government of Vietnam, the ITC said in a release.

As a result of the vote, the US Department of Commerce will continue its CVD and AD investigations and issue its preliminary findings in August and November, respectively.

Key dates in the investigations are below:

Event AD CVD
Petitions filed 13-May-20 13-May-20
DOC initiation 22-Jun-20 22-Jun-20
ITC prelim decision 17-Jul-20 17-Jul-20
DOC prelim decision 9-Nov-20 26-Aug-20
DOC final decision 25-Jan-21 9-Nov-20
ITC final decision 11-Mar-21 24-Dec-20
Issuance of orders 18-Mar-21 31-Dec-20

The case cites the following dumping margins:

Country Dumping margin (%)
Korea 42.95 – 195.20
Taiwan 20.57 – 116.14
Thailand 106.36 – 217.50
Vietnam 5.48 – 22.30

Source: Commerce Department 

Import volumes have increased since 2017, particularly from Thailand and Vietnam, which show a 29.8% and 39.1% increase in number of tyres shipped, respectively. Volumes from Korea are up by 2.7% in that time period.

2017 2018 2019
Country Volume Value Volume Value Volume Value
Korea 18.6m 1.16bn 19.3m 1.19bn 19.1m 1.17bn
Taiwan 8.9m 356.1m 8.4m 343.9m 8.8m 373m
Thailand 34.9m 1.41bn 40.6m 1.72bn 45.3m 2bn
Vietnam 8.7m 350.1m 10.6m 411.4m 12.1m 497m

Source: Commerce Department

There are two separate investigations: antidumping duty, involving all four countries, and countervailing duty, involving only Vietnam.

The latter is the Commerce Department's first investigation of alleged currency subsidies in relation to a foreign currency with a single exchange rate, the department said.

RISING CRUDE COULD PRESSURE PRICES FROM LOWS
The second-quarter’s crude price collapse pressured US SBR prices to their lowest point in the series history, which dates back to 2005.

ICIS Editorial Chart goes here

SBR price movement tracks the price direction of feedstocks butadiene (BD) and styrene, both of which are tied to crude.

US prices were likely at a floor at midyear, with crude rebounding from historic lows in late April to $40/bbl as of mid-July.

Cost pressures have squeezed margins for producers, which continue to grapple with weak and recovering demand.

Upward pressure could emerge if crude remains firm, with underlying support from tighter spot availability globally because of plant cutbacks in Q2.

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SBR is used in tyres, basement waterproofing systems, building applications and rubber cutting boards.

Major North American SBR producers include Dynasol, Goodyear Tire & Rubber and Lion Elastomers.

Focus article by Amanda Hay

Thumbnail image by Shutterstock