SINGAPORE (ICIS)--Spot butadiene rubber (BR) prices in Asia are likely to be under pressure in August, with values of feedstock butadiene (BD) expected to come off soon after spiking by more than 30% in just a month, market sources said on Thursday.

BR producers are currently seeking $3,100-3,200/tonne (€2,542-2,624/tonne) CFR (cost and freight) Asia for August shipments, up by an average of $200/tonne from July, in light of the surge in BD prices, but buyers might put up a tough resistance, they said.

“The feedstock BD prices have peaked at $2,500/tonne CFR NE Asia and may fall to around $2,300-2,400/tonne CFR NE Asia in early August, which will cap the BR prices,” a trader said.

With BD likely to soften in the near term, downstream tyre producers are insisting on lower BR prices or at least a rollover of July contract prices at $2,900-3,000/tonne CFR Asia for August, market sources said.

“We may consider a rollover for August contracts but it will be difficult to consider a discount as our margins will be eroded,” a BR producer said.

BR needs to be priced about $600-700/tonne higher than the values of feedstock BD for the BR makers to break even, industry sources said.

Underlying weakness in demand in the automotive sector amid a slowing global economy is another major factor that will weigh on BR prices.

Consumer confidence has been eroded by the eurozone debt crisis, a faltering US economy, and the slowing economies of China and India, leading to a global decline in vehicle sales.

BR is used in the production of tyres for the automotive industry.

“Demand for BR is likely to remain flat as the macro-economic outlook is still very uncertain and does not look good for the rest of the year,” a BR supplier said.

In India, where the automotive industry is considered as an engine of economic growth, a major car maker – Maruti Suzuki – is besieged by labour issues, while other car makers have had to cut production as consumers hold back their purchases.

A slowing economy, uncertain fuel price regulations, new taxes and a weakening Indian rupee have slowed down sales of new cars. In May, growth in sales of new cars in the country decelerated to 2.8% compared with a 7% pace recorded in the same period in 2011.

The Society of Indian Automobile Manufacturers (SIAM) said car sales for the current fiscal year are expected to grow at a slower pace of 9-11% than the 10-12% clip originally projected in April.

In China, major cities including Beijing, Shanghai and Guangzhou have resorted to quotas to curb vehicle emissions and ease traffic congestion – which will likely slow auto sales.

Truck tyre makers in China have cut their production output to about 50% of their capacities this year, industry sources said.

($1 = €0.82)