11.09.13

September Feedstocks, Natural and Synthetic Rubber Market Report

Synthetic Rubber

In August, the European synthetic rubber market benefitted from the significant price reduction seen for the major feedstock butadiene, which gave European producers a chance to export again. This fact is important as the European synthetic rubber producers could not survive in the domestic market alone and need the export volumes.

In the past month, with the higher feedstock cost, the European market was impacted by imports from Asia and Russia, which gave some clients a cost advantage as for some applications, comparable qualities were offered €100 to €200 per metric ton below the European prices. The main cause for this is based on the fact that the traditional export markets for Russia, for example China, are currently very soft due to high inventories and low demand. Therefore, these volumes are trying to find a home in Europe at prices lower than domestic offers. Nonetheless there are signs of a improvement in demand from China in September.

Emulsion SBR is now in the range of €1,340 to €1,710 per metric ton for dry emulsion grade. The oil grades followed this trend and TDAE extended in 1723 is now in a price range of €1,435 and €1,635 per metric ton. PBR prices are in a range of: for nickel-based PBR in a range of €1,550 to €1,650 per metric ton, for neodymium-based PBR in a range of €1,750 to €1,850 per metric ton and for lithium-based PBR in a range of €1,850 to €1,950 per metric ton.

In Asia, Rubber makers in Asia increased offers amid the increase in Korean spot butadiene prices. Korean offers of SBR 1502 into Northeast Asia and Southeast Asia increased to $1,800-$1,850 per metric ton delivered. In the next three months, the synthetic rubber market is not expected to change much. Market inventories of synthetic rubber remain at high levels.

In the U.S., synthetic rubber market conditions remain extremely challenging on both sides of the negotiating table. Supply is readily available, partially because producers could increase rates easily at any time, should demand justify the additional production. However, the result of the large butadiene price decrease in August was to effectively close, or at the very least make it much more difficult, the door to imports. As we noted last month, the decrease in raw material costs does not appear to be stimulating demand, just preventing further destruction.

Market Analysis

While an improved market is expected next year along the supply chain, it is far from clear that all of the players will enjoy stronger margins, especially on incremental production. There is no strong incentive to run SBR production at high levels through the end of the next year as the full cash costs are not covered.

Natural Rubber

Average August natural rubber prices on the SICOM rose 5.5 cents from July, averaging roughly $1.07 per pound ($2,367 per ton) for the month. Thailand, the world’s largest producer of natural rubber, together with Malaysia and Indonesia, agreed last year to cut exports by 300,000 tons during the first half of 2013 in an effort to boost prices. The export restrictions have now ended but there was no real impact on prices as they continued to trend lower over that timeframe. High inventories have also played a role in low rubber prices over the past several months.

TOCOM natural rubber futures increased in August, ending the month $135 per ton higher than the July closing price. The August RSS3 contract closed at $2,673 per ton. Monthly prices on the TOCOM through December 2013 also increased from last month, ranging from $2,607 to $2,697 per ton. TSR20 futures on the SICOM closed at $2,367 per ton for August, an increase of $143 per ton from the July contract price. SICOM TSR20 futures prices through December 2013 also increased, ranging from $2,400 to $2,439 per ton, around $200 per ton higher than the futures strip at the end of July.

Butadiene

The Taiwan domestic contract price was $1,041 per ton for August deliveries. The U.S. butadiene contract price marker posted by IHS Chemical increased to 43.1
cents per pound ($950 per ton) for September. The European contract price of August was €750 per metric ton. For September, the price was settled with a small increase of €25 per metric ton to €775 per metric ton.

Currently, the U.S. contract marker is the lowest butadiene price in the world. Price movements in either November or December are not expected, but it will be interesting to see what happens in October.

Styrene

Spot prices continue to spike as tight supply, short covering and logistics issues push the European market to record high levels of $1,900 per mt. Demand is still
down year on year, and given the high price of styrene monomer, consumers may now step away from the market. The extremely high European styrene price is luring U.S. styrene to be shipped to Europe and the Asian styrene market will be neglected by U.S. styrene players as a result.