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Synthetic Rubber Producers Under Pressure As Butadiene Prices Climb
Posted on February 16th, 2017 by Nigel Davis in Chemicals Industry News and Analysis
The recent rapid and, since August, relentless increase in butadiene prices in Asia is forcing some consumers to think about cutbacks.
Spot prices have climbed from $1,000/tonne to more than $2,500/tonne as supply has tightened. Prices have continued to rise, with a deal of $3,000/tonne CFR (cost and freight) NE (northeast) Asia reported in mid-January.
The upward price trend is, nevertheless, largely demand-driven, the draw being buying interest in China and synthetic rubber sales in the automotive and tyre sectors.
Planned plant maintenance has been expected to keep butadiene supply snug and push synthetic rubber prices higher. Production of natural rubber, which accounts for most rubber demand, has been constrained most recently by floods and earlier by production cutbacks in the face of low prices.
Those cutbacks have helped push natural rubber prices significantly higher. Natural rubber futures prices in China are up by more than 63% since early November.
The amount of natural rubber used in a tyre depends on its size, with car tyres being largely synthetic rubber and aircraft tyres made from natural rubber.
Butadiene has been here before with price volatility driven by tightened supply and market sentiment underpinned by steadily increasing downstream synthetic rubber demand.
Over time, natural rubber has been the ‘swing’ element and, to a great extent in recent years, has helped keep butadiene prices in check.
But natural rubber, while it is used as an industrial material is sourced as an agricultural commodity largely from independent smallholders.
Those smallholders were put under intense pressure when the oil price fell and with it prices for their product.
Production cutbacks have slowed the rapid increase in natural rubber production achieved over the past decade.
In the three years 2014 to 2016 the global supply of natural rubber fell by 0.6% on average, according to the Association of Natural Rubber Producing Countries (ANRPC) – the data include non-ANRPC nations. Over the same period natural rubber demand grew at 3.2%/year. Global natural rubber supply was 11.975m tonnes in 2016, short of global demand by 655.000 tonnes.
“The faster growth in demand helped to absorb the excess supply generated until 2013 and bring favourable balance between demand and supply,” says the ANPRC.
South Thailand, the “latex bowl of world” according to the ANPRC, accounts for most of Thailand’s supply of natural rubber, in itself 37% of global supply.
So the devastating floods in 12 provinces in the region this January are expected to hit production hard and, according to Thai authorities, reduce the country’s natural rubber output by 360,000 tonnes. The impact will be felt largely until May because of seasonal factors affecting production.
But will the unexpected cut provide a platform from which natural rubber prices rise still further through 2017? The ANPRC thinks not.
The potential for supply to increase based on higher prices is significant, particularly in Malaysia and India.
It depends how the price develops, of course, and the direction agricultural commodities take this year. Competing in large parts of the market are the butadiene-based synthetic rubbers with their own production-linked dynamic, especially in the first half.
The on-going and planned butadiene shutdown schedule in Asia will help keep the upward pressure on prices in the first months of this year. A significant impact from the Lunar New Year holidays is not expected.
“Demand for synthetic rubber is very strong in China as the tyre factories are building up inventories, given expectations of stronger demand for tyre replacements in 2017,” a Chinese synthetic rubber producer said in December 2016.
Another producer said: “We are targeting a significant increase for the synthetic rubber prices for January, but it remains to be seen whether the price increases are acceptable or sustainable throughout the first quarter of 2017.”
Additional reporting by Helen Yan
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