Asia tyre makers shun Q3 SBR contract, prefer spot buying

SINGAPORE (ICIS news)--Tyre producers in Asia will turn to more spot buying in the third quarter as they expect styrene butadiene rubber (SBR) prices to weaken on concerns over a slowing Chinese economy and falling feedstock butadiene (BD) values, market players said on Wednesday.

 

Most small and medium-sized tyre producers are keeping minimal inventories and increasing their spot consumption by purchasing on a need-to basis.

 

“We will increase our spot consumption of SBR to 55-60% and reduce our contract volumes to 40-45% as we anticipate SBR prices to weaken in the third quarter, given the China factor and falling feedstock BD price,” an Indian tyre producer said.

 

The feedstock BD plunged nearly $100/tonne (€82/tonne) to $2,060-2,080/tonne CFR (cost and freight) northeast (NE) Asia last week, according to global chemical market intelligence service, ICIS pricing.

 

Tyre producers usually tend to lock in more than 50% of their raw material requirements on a contract basis to ensure a steady feedstock supply to meet their production timelines.

 

SBR is a major raw material used in the production of tyres for the auto industry.

 

Non-oil grade 1502 SBR prices have dropped by about $200/tonne since April, with current offers above $2,300/tonne CFR Asia finding few takers.

 

The behaviour of the tyre producers has become increasingly more spot-driven, given market uncertainty on concerns over a slowing Chinese economy and the recent plunge in the feedstock BD value.

 

“A slowing Chinese economy means a fall in demand for commodities, which means surplus stocks and lower prices,” the Indian tyre producer added.

 

Chinese manufacturing expanded at a slower pace in May, raising concern that imports by the world’s fastest-growing major economy is easing.

 

China’s Purchasing Managers’ Index fell to 53.9 from 55.7 in April, seasonally adjusted, the Federation of Logistics and Purchasing said.

 

The SBR producers and downstream tyre makers in Asia are closely watching the Chinese market as falling Chinese demand will mean downward pressure on the SBR price.

 

“China plays a major role in determining the price trend. China is a major SBR consumer and importer and if China slows down or stops buying, then prices will fall,” a major tyre producer said.

 

With their wait-and-see stance, tyre makers have effectively stonewalled the third-quarter SBR contract negotiations, according to SBR producers.

 

“It is already June and yet the tyre makers are still holding back and not willing to start negotiations for July and August shipments,” a SBR producer said.

 

“Everything is very uncertain in China now and we prefer to wait and see before we settle the Q3 contracts,” a Chinese tyre producer said.