China SBR demand to stay soft in H2 amid economic slowdown
China’s styrene butadiene (BD) rubber market is expected to be soft in the second half of 2019 due to waning demand amid a slowing economy.
Demand for SBR has weakened as downstream tyre makers in the country have been operating at lower rates due to declining domestic vehicles sales and production.
High tyre inventories amid a slowing Chinese economy and an escalating US-China trade war have weighed on spot interest for SBR imports.
SBR spot prices have stagnated in the past two months in view of weak market sentiment and poor demand.
Non-oil grade 1502 SBR spot prices have languished in the range of $1,325-1,375/tonne CIF (cost, freight and insurance) China since early April this year.
On 19 June, non-oil grade 1502 SBR prices averaged $1,325/tonne CIF China, ICIS data showed.
CHINA AUTO SALES DECLINING
China is the world’s largest automotive market, but its vehicles sales and production have been declining for months amid an economic slowdown, consequently depressing demand for tyres.
SBR is a raw material used in the production of tyres for the automotive industry.
The country’s car market weakened further in May, with sales down by 16.4% year on year and 3.4% month on month to 1.91m units, official data showed.
Its economy, which is the second-biggest in the world, is expected to slow down further this year.
The International Monetary Fund (IMF) projected China’s economic growth to moderate to 6.2% this year and to 6.0% in 2020, as uncertainty around trade tensions with the US remain high and risks are tilted to the downside.
The expected growth for 2019 was lower than the previous forecast of 6.3% , but within China's own target of China's own target of 6.0-6.5%.
The US and China have been locked in a trade war since July 2018, with the latest round of tit-for-tat tariff impositions taking effect in May and June.
HIGH BD COSTS ERODE SBR MAKERS’ MARGINS
Adding to the woes of Asian SBR makers is the erosion in margins from high feedstock butadiene (BD) costs.
Spot prices of key feedstock BD had increased by about 15% since early April to $1,100/tonne CFR (cost and freight) northeast (NE) Asia on 21 June 2019 due to a supply crunch caused by unplanned cracker shutdowns in South Korea.
Hanwha Total has delayed the restart of its 120,000 tone/year BD unit in South Korea by more than a month to mid-June, resulting in a loss of about 10,000 tonnes of BD.
LG Chem had a 10-day outage at its 160,000 tonne/year BD unit in Daesan in early June, while Yeochun NCC’s (YNCC) unit was shut for maintenance from early May to mid-June.
BD’s tight supply may soon ease as the plants have recently resumed operations, which could allow SBR producers to recover some margins but this will still hinge on any improvement in demand.