Chinese SBR Dips Amid Weak Market Dynamics & Lesser Tire Demand

China’s styrene-butadiene-rubber (SBR)-butadiene spread has narrowed by a significant percentage recently, with sharp falls noted in the SBR prices. This happened amid firmer feedstock Butadiene which continued to show resilience due to strong export demand.

SBR prices in China have dropped to $1820/mt during the week ending June 4, showing a fall of nearly 3.2% over the May-final week levels. This fall has led to the narrowing of spread between SBR and Butadiene which caused a ripple effect across Asian SBR markets.

The reasons for weakening SBR prices include surge in COVID-19 cases across several parts of Asia and related impact on downstream factory operations leading to reduced demand in the region. With the reduction in demand and already oversupply situation in the automobile hub like China, imports of SBR fell remarkably between May and early June. China’s June automobile sales have shown a slump due to a shortage of microchips used in automobiles. As automobile is the key end use industry for SBR, reduction in the demand of automobile has also pressured the prices of SBR.

Sharp increase in feedstock Butadiene prices was observed due to increased demand from the Americas, particularly from the United States and Mexico. The reason for this sudden surge in demand has been attributed to the rise in sales of automobile in both countries which are strongly recovering from the coronavirus impact.

As per market experts, the spread is unlikely to narrow sharply in the near term because the prices of Butadiene are expected to remain stable with the release of supply pressure with upcoming new plant capacities. In June, China's Zhejiang Petrochemical plans is expected to start its new Butadiene production unit with the production capacity of 200 KTPA. In May last week, 300 KTPA SBR units of Yangzi Petrochemical Company and Fushun Petrochemical Company were restarted, which are operating normally now. With increasing supply side pressure and reduced operating rates at several tire production units, SBR values are likely to fall further in the coming weeks.