Asia BD uptrend may fizzle out after 17% spike; buyers retreat

SINGAPORE (ICIS)–Asia’s butadiene (BD) spot prices may halt their uptrend after spiking by more than 17% in a span of one month, hurting the margins of downstream synthetic rubber producers, market sources said on Wednesday.

On 2 September, spot BD prices were assessed at an average $1,145/tonne CFR (cost and freight) northeast (NE) Asia, up by $170/tonne from early August, according to ICIS data.

Prices soared in August on the back of tight supply and a surge in buying interest in the key China market.

“Our margins have been wiped out as the synthetic rubber market is very soft, so it is difficult to see BD price going up further,” a northeast Asian synthetic rubber producer said.

BD is used as raw material for the production of synthetic rubbers, which go into tyres for the automotive industry.

Spot BD prices went on an upward trajectory in the past month as Chinese buying interest surged ahead of the early-September G20 Summit at Hangzhou in Zhejiang province.

Petrochemical plants in Jiangsu and Zhejiang provinces in eastern China were mandated to cut production or shut down operations in the run-up to the G20 Summit, which was hosted by China for the first time on 4-5 September. The measures were taken to ensure better air quality for the duration of the summit.

Anticipating that domestic supply will tighten in China in August, traders had actively scouted for BD cargoes, adding to the crunch in supply and had prompted sellers to hike offers, market sources said.

“It is difficult for the BD price to rally anymore because it is not sustainable due to the strong resistance from the end-users to any further price hikes,” a trader said.

Soaring feedstock costs caused a severe margin erosion for SBR producers amid weak demand for their products. Most BD consumers have retreated to the sidelines this week, market sources said.

“The Chinese market has its own particular dynamics, but outside of China, we cannot continue to absorb any further BD price increase, as our margins have fallen into negative territory,” a southeast Asia-based synthetic rubber producer said.

On 2 September, domestic BD prices in east China were at yuan (CNY) 9,700-9,800/tonne, up by about yuan (CNY) 800/tonne since 19 August, ICIS data showed.

“I am surprised that the BD price is much stronger than expected, which was due primarily to the China players, but the uptrend may not be sustainable because of the soft downstream synthetic rubber market,” an Asian BD producer said.

In the downstream styrene butadiene rubber (SBR) market, price gains were lagging far behind the spike in feedstock cost.

Non-oil grade 1502 SBR inched up by about 0.2% in the past month to $1,350/tonne CIF (cost, insurance and freight) China on 31 August, ICIS data showed.

“The synthetic rubber makers are facing great difficulties in raising the SBR price as our customers are unwilling to accept any SBR price hike, while the feedstock BD price has soared by more than $150/tonne since early August,” a major downstream synthetic rubber producer said.

Adding to the woes of the synthetic rubber producers is the competitive prices of rival product natural rubber (NR), which has been hovering at around $1,300/tonne in August and early September.

SBR and NR are substitute raw materials in tyre production for the automotive industry.

Tyre makers in emerging economies in Asia have more flexibility in raw material substitution in their product formulations.

Focus article by Helen Yan

($1 = CNY6.68)

Picture: Tyre factory in Quanzhou, China. Butadiene (BD) is used as raw material for the production of synthetic rubbers, which go into tyres for the automotive industry. (Source: Top Photo Corporation/REX/Shutterstock)