OUTLOOK ’18 European SBR players remain concerned over upstream volatility

27 December 2017 15:00 Source:ICIS News

LONDON (ICIS)--European styrene butadiene rubber (SBR) market players continue to highlight butadiene (BD) feedstock price volatility as a concern set to continue into 2018.

The market witnessed price swings in either direction and volatility was a key focus for market participants throughout 2017. It was a year of monumental peaks and troughs with contract prices exposed to the rising and falling movements in the European BD market.

In February 2017 SBR saw the largest month-on-month increase since contracts moved from a quarterly to a monthly basis, settling at an average price hike of €500/tonne depending on starting point and account.

At the end 2016 and during 2017, the landscape was volatile. Prices began to surge in Asia around December 2016 and Europe quickly saw growing export opportunities into Asia. Chinese New Year stimulated a rise in demand and prices jumped up.

There were pockets of sustained tightness in the European spot market especially, as suppliers focused on non-contractual volumes with the widening arbitrage between Europe and Asia.

Domestic supply tightened considerably and February into the beginning of March saw peak dry grade pricing levels. It was a very challenging time for securing volumes, specifically in the spot market.

Towards the middle of the year, prices began cooling off and descended rather rapidly to levels which were closer to previous ones in 2016. By September, prices began climbing again on renewed export interest to Asia and higher feedstock costs.

Looking forward to January 2018, SBR market participants in Europe are expecting demand to pick up after the Christmas holidays as players start to return to the market. Increased demand in the overseas Chinese market is expected to rise ahead of the Lunar New Year in February.

BD supply is considered fundamentally tight and there was a view that BD pricing is still expected to be volatile this year but with less risk than 2017.

European SBR production in 2018 is not expected to change significantly and supply levels are likely to be similar to 2017. Dry grade emulsion SBR (E-SBR) is expected to be balanced-to-tight and more balanced for oil extended 1700 grade material.

Imported material is expected to flow into Europe from Russia and occasionally from South America. It is likely that the European market will see less imports from Asia compared to other regions.

Another talking point in the market is the impact from anti-dumping duty (ADD) rates in various regions. In the US, the anti-dumping investigation began in July 2016, following petitions by Lion Copolymer and East West Copolymer. East West has since declared bankruptcy and has sold its plant.

After the investigation, the Department of Commerce issued preliminary final rates for cash deposit collections on imports from Mexico, Brazil, South Korea and Poland in July 2017.

This could generate higher utilisation of domestic capacities in the US despite some rationalisation at East West’s facility earlier in 2017.

India’s antidumping duty rates on SBR imports from the EU, South Korea, Thailand, will be implemented for a five-year period, according to a customs notification letter from the Ministry of Finance obtained by ICIS at the end of August.

Mexico also began anti-dumping investigations on imports of E-SBR from the US, Poland, South Korea and Japan in August 2017.

European SBR market players are expecting single-digit growth of varying degrees in 2018. On average, canvassed participants are expecting 1-3% growth in the EU market.

Some of the feedback on growth in the tyre sector has been slightly varied and there was isolated mention of expected growth as high as 4% in one case.

The main opportunities for European players that have been highlighted for next year will be Asia. China’s automotive sales is a key region for rubber demand and it is expected to remain an important driver for next year. The tax incentives in China drove high levels of growth in 2016 and spurred on demand in the region ahead of the expiration of the tax incentives in 2017, which somewhat inflated growth.

With 2017 proving to be a challenging year in terms of fluctuating SBR prices and periodic tightness driven by export opportunities to Asia, European market players, especially on the buy side, are preparing for potentially more of the same in 2018.

By Melissa Hurley