Gleaning the surface of synthetics

January 21, 2012

lanxess synthetic rubberWith the year slated to bring the biggest glut of natural rubber production and the prices for synthetic rubber (SR) expected to fall further, analysts say that it may be time for the SR market to uplift itself, especially in its use in “green” tyres.

Expanding fortunes for SR

A recent update from the Singapore-based International Rubber Study Group (IRSG) forecast global SR demand to grow by 5.5% to 14.9 million tonnes in 2011 and by a further 5.5% to 15.7 million tonnes this year, based on figures for the first nine months of 2011.

IRSG also revised global SR consumption data downwards from 2006-present to 14.8 million tonnes on a moving annual total (MAT) basis in September 2011.

Here, the rate of growth accelerated in the third quarter of 2011 as compared to the second quarter. World SR exports continued to expand during the third quarter of 2011, increasing by 8.6 million tonnes on a MAT basis in September 2011, rising from 8.5 million tonnes on a MAT basis in June 2011.

With analysts saying that the growing demand for natural rubber may not be reflected by higher prices
because of concern about Europe’s debt crisis and slower growth in China, it is true that the period of high
growth for natural rubber has ended.

Furthermore, according to investment bank Goldman Sachs, the natural rubber market is expected to face a
glut this year, with a 413,000-tonne surplus from the 87,000-tonne shortage in 2011 that helped drive the price up to a record last February. Prices have been falling since then based on expected supply and slower growth in China, the largest consumer of the material.

Goldman Sachs also says the prices of the petroleum-based SR fell 38% to $2,750/tonne in the four months
ending November last year and are expected to fall further. This may be the cue for SR to push its market
appeal.

Growth of key SRs

SR market’s growth may be bolstered by demand for light commercial vehicles, which will increase by 6.7%
to a record 77.7 million units this year, according to a US-based research firm RL Polk & Co. China will take a lion’s share, boosting its car sales by 16% to 17.9 million vehicles. Though sales were unchanged at 15.5 million last year, after the government phased out purchase incentives, sales are expected to pick up this year.

Styrene butadiene rubber (SBR), an important commodity that plays a key role in the automotive sector, remains the largest segment in the SR market.

Growth of SBR continues unabated due to rising demand from China, India, Russia, Central and Eastern Europe and Central and South America.

To meet the demand, Japanese supplier Asahi Kasei Chemicals will construct a second plant in Singapore
to produce 50,000 tonnes/year of solution styrene butadiene rubber (SSBR). This move is part of the
company’s mid-term management initiative to broaden its SSBR operations. Built earlier in June 2011, and
adjacent to the second plant site, is its first plant with the same capacity that will start operations in 2013.

Similarly, speciality chemical firm Lanxess has initiated a feasibility study at its Triunfo site in Brazil to implement new technology to switch production of emulsion styrene-butadiene rubber (ESBR) used in standard tyres to SSBR used in green tyres. The current capacity for ESBR in Triunfo is 110,000 tonnes/year and tyres in view of expanding global sales of cars and the switch would potentially require a medium-size,
double-digit million EUR investment. A final decision will be made mid-2012. Lanxess already produces SSBR
at its sites in the US and France.

Lanxess also produces halobutyl rubbers that are used in tyre inner liners of tubeless tyres and help to
keep tyre pressure constant. Demand for these rubbers is being driven by the trend toward radialisation of
tubeless tyres in Asia.

To meet this demand, Lanxess is making the single largest investment of its history in the form of a EUR400 million butyl plant in Singapore, planned to start production in early 2013.

Likewise, expecting a growth of 6% a year for butyl rubber in the region is Japan Butyl (JBC), ExxonMobil
Yugen Kaisha (EMYK)’s joint venture company with JSR Corporation in Japan. Thus, it is increasing its halobutyl rubber plant in Japan by 10,000 tonnes/year or 14% to 80,000 tonnes/year starting this year.

Meanwhile, Al-Jubail Petrochemical or Kemya, a 50:50 joint venture between Sabic and ExxonMobil Chemical, is planning production capabilities at its elastomer project at Al Jubail Petrochemical complex in Saudi Arabia.

The US$800 million project is expected to establish a domestic supply of more than 400,000 tonnes of carbon black, butyl rubber, SBR, BR and EPDM. Third-party licence agreements have been secured with Continental Carbon for its carbon black production technology and with Goodyear for its SBR and butadiene rubber technology, the company said.

Green tyres to boost the market sales

The “green” tyre sector is the fastest growing in the industry, with an annual growth rate of about 10%. Demand is being driven by the megatrend mobility, above all in the regions of Asia and Latin America as the middle class there becomes more affluent. According to the latest forecasts, around 2 billion tyres will leave
production lines worldwide by 2015 compared to around 1.6 billion at present. This is an increase of some
25% for the overall tyre industry in this period.

In addition, demand will be accelerated by tyre legislation being introduced around the world. Japan and South Korea were the first countries in the world to introduce a label system that grades tyres above all for
their fuel efficiency and wet grip characteristics.

All this will require the use of SRs and Lanxess says it has increased its production capacities for its neodymium polybutadiene rubber (Nd-PBR) at its sites in Germany, Brazil and the US. The company is also
planning a new plant for Nd-PBR in Singapore. The EUR200 million facility is scheduled to go on stream in
2015.

While Nd-PBR is used in the treads and sidewalls of green tyres and helps reduce the rolling resistance and increase the fuel efficiency of a tyre, SSBR is mainly used in the tread compound and helps to reduce rolling
resistance and improve grip.

Challenges for the market Chinese tyre makers who are faced with slower sales, over-capacity and tight cash flow, are being pressured to lower tyre prices and this may lead to lower use of SR.

Already, tyre makers like Bridgestone have indicated that they were unable to recoup all of the gain in raw
material prices last year. But the Japanese company expects a 35% higher income this year.

Meanwhile, the second largest tyre maker Michelin expects a 3.9% decline in profit this year to EUR1.29 billion, which is still its second highest recorded earnings.

In other news, the tyre sector in India, the biggest user for SR, is treading the same route downhill. According to the Rubber Board, the last quarter of 2011 recorded a 5% to 24,010 tonnes decline from the previous year’s consumption of 25,323 tonnes. This ultimately affects SR’s output, falling by 10% to 8,421 tonnes in September last year with consumption dropping by 3% to 33,510 tonnes.

Facing the consequence of slow tyre sales, South Korea’s Kumho Petrochemical has reduced production capacity of its SBR and PBR plants from 95 to 80% last November and continued to run on these capacities until early this year. It operates 120,000-tonne/year PBR and 342,000-tonne/year butadiene rubber plants in Yeosu.

Another factor that figures in SR’s pricing is the rising prices of components like butadiene (BD), a monomer used for the production of SR. In Asia,

BD is poised to increase its price this year due to its limited availability since November 2011 and an increased demand for the substance.

A price of US$2,900-3,000/tonne CFR (cost and freight) for fresh shipments of BD may not sit well with downstream SR producers who said that they are amenable with a US$2,600/tonne CFR, not higher.
Otherwise, production will be reduced to maintain an acceptable profit margin.

It may seem that the SR industry is walking a tightrope with experts observing that SR prices could increase further in 2012 if the cost of feedstock continues to shoot up and demand in Asia, particularly in China, stagnates.(PRA)

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