Climbing Natural Rubber Price Increases Global Butadiene Demand12 Jan 2011 • by Natalie Aster
Climbing natural rubber prices, and the resulting increase in synthetic rubber, is putting a squeeze on the global butadiene market, sources said during the past week.
The issue begins in Asia, a US source said last week, but spreads into Europe -- where SBR producers are clamoring for butadiene -- and then trickles down to the US market, where buyers are not seeing enough imports from Europe.
"Basically, you have demand for SBR in Asia," the source said. "But it's cheaper to make the SBR in Europe and then ship it. Much cheaper than just shipping the butadiene. So the US is sitting around, waiting for any excess there might be in Europe. And that material might make its way to the US."
In Malaysia, the rubber market has been climbing to its highest level since 1972. Natural SMR20 (Standard Malaysian Rubber), prices were at $5.17/kg on Friday against $4.97/kg on Jan 4, due to the rainy season affecting production.
Also, new downstream capacities in China and South Korea coming online either late March or early April are expected to tax butadiene supply, which will also coincide with April cracker turnarounds.
That increased demand for synthetic rubber has sent prices for butadiene higher in Europe, where it is being converted into SBR.
A European rubber manufacturer said the high natural rubber price could send more buyers into the synthetic market, which would increase demand and price for SBR. The increase could be limited, though.
"I would think the increase in consumption if buyers switched would be 5-10% maximum," the source said. "It involves formula changes for consumers and its not that easy to switch. There are also two new ESBR sites expected to come on line in China in Q1 2011. This could balance out any increase in demand."
Another rubber manufacturer in Europe said the increased natural rubber price might have only a small impact. Unless, of course, you are a large consumer of natural rubber.
"Natural rubber prices are a concern, but it's difficult to see how a shift to synthetic rubber will change prices that much," the source said. "There are limited studies available to show how much demand you can actually replace.
But natural rubber is above $4,000, with banks forecasting $4,500/mt. We will have a situation where those who are large consumers of natural rubber will have high costs and limited availability."
Globally, butadiene prices bottomed out in October and have been trending higher since.
In the US, the spot butadiene price was near $1,610/mt FOB USG during the last week of October. Since then, the price has climbed above $2,115/mt as supplies tightened, a more than 30% increase.
European butadiene has climbed from just below $1,600/mt during the middle of October, to above $1,880/mt FOB Rdam last week.
Sources in the US have said the US price should reach a $275 to $325 premium over the European price to account for freight charges to import the material.
In Asia, the butadiene price has climbed from near $1,760/mt in October to near $2,030/mt FOB Korea.