China SBR makers shut plants to stem losses, price slide

China’s styrene butadiene rubber (SBR) producers hurting from poor margins have shut their facilities to stem losses in the current weak market, while hoping to arrest the slide in their product prices, industry sources said on Wednesday.

Demand is seasonally soft during the summer months, but the weakness is aggravated amid the overall slowdown in the Chinese economy, they said

“The SBR market is bad in China, and demand is weak, so several SBR plants in China have shut down recently as they have no margins,” a Chinese SBR producer said.

SBR non-oil grade 1502 prices have shed about 8% since the start of the month, also dragged down by recent sharp falls in crude and feedstock butadiene (BD) costs.

On 17 July, prices were assessed $1,450/tonne CIF (cost, insurance and freight) China, according to ICIS data.

“SBR prices may still fall lower as buyers have retreated to the sidelines to wait for lower prices as they think $1,450/tonne is too high,” a  northeast Asian trader said.

Chinese producers Tianjin Lugang, Zhejiang Zhechen Rubber, and Zhejiang Weitai Rubber have taken their respective 100,000 tonne/year SBR plants off line in early July and are not expected to resume production until next month, market sources said.

Fujian Fuxiang’s plant with the same capacity was also taken off line on 3 July because of a technical glitch but resumed production last week.

SBR is a raw material used in the production of tyres for the automotive sector.

Some of China’s SBR plants may shut down permanently as producers grapple with deteriorating conditions in the country’s automotive market amid the economic slowdown, industry sources said.

“They have no money to buy raw material due to limited cash flow and will struggle to operate before they go bankrupt and shut down in a few year. Demand will not recover to what it was before as future automobile growth will slow to 3%,” a Chinese SBR producer said.

China, the world’s second-biggest economy and its biggest automotive market, is expected to post a 2015 GDP growth of 7.0% - the slowest pace recorded in 25 years, with the annual average expansion steadily decelerating since 2010.

Left with virtually no buyer in the Chinese domestic market, local traders have started re-exporting Russian cargoes procured early in the year to southeast Asia, market sources said.

“China traders are re-exporting the Russian SBR which they bought earlier this year at competitive prices because demand is poor in the Chinese domestic market,” a southeast Asian trader said.

The Asian market is flushed with supply and the presence of Russian cargoes, which were being offered at prices that were $100/tonne lower than regional cargoes, is exerting a further downward pressure on SBR prices, market sources said.

A general slump in commodity prices led by crude, as well as falling BD costs, has been weighing on the Asian SBR prices, they said.

At midday, US crude futures stood at $50.13/bbl, down 73 cents from the previous day, while Brent crude were trading 51 cents lower at $56.53/bbl.

Prices of feedstock BD have plunged by 17% since 3 July to average $1,190/tonne CFR (cost and freight) northeast (NE) Asia on 17 July, ICIS data showed.

“Traders are more cautious as the margins for SBR have shrunk but the risk is big. Demand has also weakened during the summer lull period, and the recent Shanghai stock market turmoil has also dried up liquidity,” a Chinese trader said.