Market and product

Asia styrene butadiene rubber (SBR) prices may still fall further on weak demand but its downward trend is likely to be tempered by the recent rebound in the feedstock butadiene (BD) price, market sources said.

Non-oil grade 1502 SBR prices fell to an average of $1,065/tonne CIF (cost, freight and insurance) China on 6 January 2016, down by 10% from an average of $1,175/tonne CIF China in early November 2015, ICIS data showed.

However, the feedstock BD price recently rebounded following the disruption in BD supply from Shell’s force majeure (FM) on its cracker at Bukom, Singapore, in early December last year.

Shell’s 960,000 tonne/year cracker and 155,000 tonne/year BD unit may be shut for up to four to six months, market sources said.

The prolonged and unplanned Shell cracker outage, had bolstered BD prices as traders snapped up BD sales tenders.

Feedstock BD price rose to an average of $780/tonne CFR (cost and freight) northeast (NE) Asia on 8 January 2016, up by 13% or $90/tonne since 4 December 2015, ICIS data showed.

However, the prevailing weak demand for SBR is a concern for many SBR producers, who said the recent BD price rebound may be short-lived, given the depreciation of the Chinese yuan against the US dollar, weak crude oil and natural rubber (NR) prices, market sources said.

SBR and NR are substitute raw material in the production of tyres for the automotive industry.

China is the world’s largest automotive market and world’s second largest economy.

“Demand for SBR will remain poor in the first quarter as the downstream tyre factories in China are mostly operating at reduced rates because of the weak tyre export market and poor macro-economic conditions,” a Chinese SBR producer said.

Stiff anti-dumping duties (ADD) imposed on China tyres by the US authorities have hurt the Chinese tyre sector, prompting several local Chinese tyre factories to cut production output, market sources said.

The upcoming Lunar New Year holidays in early February are also expected to further weigh on demand for SBR as factories will shut for the holidays. Lunar New Year starts on 8 February this year.

Factories in China usually shut for about one week for the Lunar New Year holidays.

However, there is talk that some tyre factories may shut for up to one month this year, given the prevailing weak macro-economic conditions and a slowing Chinese economy, market sources said.

Caixin’s general manufacturing purchasing managers’ index (PMI) for China in December dropped to 48.2 from 48.6 in November, indicating deteriorating operating conditions for the 10th straight month, the Chinese media group said on Monday.

A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 denotes a contraction.

“We hear that some tyre factories in China may start to shut from late January till late February,” a trader said.

Apart from waning Chinese demand, a supply glut in the Asian SBR market continues to exert downward price pressure, market sources said.

Competition from deep-sea suppliers from Eastern Europe and Iran had added to the woes of Asian SBR producers.

“The US dollar has strengthened against most Asian currencies, including the Chinese yuan, so Chinese buyers will be asking for lower SBR prices from the Asian suppliers as well,” a trader said.

Spot offers of Russian and Iranian material are about $100/tonne cheaper than Asian product, thus putting pressure on Asian SBR makers to lower their prices in a bid to retain their market share, market sources said.

“How can we compete with the deep-sea suppliers, Asian SBR makers may have to consider further cuts in their production rates, given the current weak buying sentiment,” an Asian SBR producer said.