Spot prices of styrene butadiene rubber (SBR) in India look set to fall further as suppliers from Asia and Europe are diverting surplus stocks away from the weakening Chinese market, industry sources said on Thursday.
These suppliers have been cutting their SBR offers as they compete for customers in India, they said.
“We can get offers for non-oil grade 1502 SBR at $1,850-1,880/tonne CFR (cost and freight) India from European suppliers,” a downstream tyre producer said.
On 1 October, spot non-oil grade 1502 SBR prices were assessed at $1,900-2,000/tonne CFR India, down by $100/tonne from 3 September, ICIS data showed.
China – the world’s second biggest economy and its largest automotive market – continued to exhibit sluggish economic activity, prompting SBR suppliers to target the Indian market.
“It is a buyers’ market in India because suppliers from Asia and Europe are dumping their surplus stocks in India as Chinese demand for SBR has weakened,” a rubber distributor said.
SBR is a major raw material for the production of tyres in the automotive industry.
Tyre factories in China have been running at reduced rates because of rising concerns over the ongoing US anti-dumping duties (ADD) on tyres of Chinese origin, market sources said.
The US is a major export market for Chinese tyres. A preliminary ruling on the ADD investigation will be handed out at around 20 January 2015 by the US Department of Commerce, which will make the assessment whether or not Chinese suppliers are selling tyres in the US at less-than-fair value.
Weak Chinese consumption caused the surplus stocks of SBR in Asia.
Demand in India, on the other hand, has remained firm but domestic tyre makers are leveraging on weak natural rubber (NR) prices to push for lower prices of SBR, market sources said.
SMR20 tyre grade NR physical prices closed at $1,420/tonne FOB (free on board) Malaysia at the Malaysian Rubber Exchange on 1 October, down by about 13% from a month ago.
“With the weak NR prices, SBR prices are likely to fall lower,” the tyre maker said.
SBR and NR are substitutes for each other in the production of tyres for the automotive industry.
“SBR and NR prices are linked and when the NR is so weak, tyre makers can opt to use more NR instead of SBR,” the tyre maker said.
NR substitution for SBR in tyre production is generally limited to a 5-10% adjustment in the formulations, but tyre makers in emerging countries have more flexibility to make the switch, he said.
“The spread between NR and SBR is more than $500/tonne now, which makes it more economical for tyre makers to adjust their formulations to using more NR and less SBR,” he added.
Meanwhile, domestic supply of SBR in India has increased following start-ups of two new plants this year, and this is adding downward pressure on prices of the synthetic rubber.
Indian conglomerate Reliance Industries Ltd (RIL) has recently began production at its 150,000 tonne/year SBR plant in Hazira, while Indian Synthetic Rubber Ltd (ISRL) has brought on stream its new 120,000 tonne/year SBR plant at Panipat in the state of Haryana earlier this year.