Review and Prospect of Cis-1,4-Polybutadiene Rubber



Review of 2005

With the sound situation of the economy and the sustained price rise of raw materials both at home and abroad, the price of cis-1,4-polybutadiene rubber (BR) was maintained at a high level in 2005. Main market features included the following: (a) The price was high at the very beginning and was kept at a high level for most of the time. Price fluctuations only appeared from March to May and from November to December. (b) Due to the price rise of raw materials and the reduction of the profit space, the output came down in the first half of 2005 and there was a supply deficit. (c) With the increase of the operating rate and the completion of the expansion project in CNPC Daqing Petrochemical Company Ltd., the output in the second half of 2005 was much higher than the output in the first half of the year.

    1. Overall supply deficit

The total capacity of BR in China is 471 000 t/a today. Sinopec Beijing Yanhua Petrochemical Company Ltd. is the largest BR producer in China and its capacity is 120 000 t/a, accounting for 25.5% of the national total.    With the rapid development in the tire industry and especially in the production of all-steel radial tires and rubber products, the demand of BR has increased rapidly. China has become the second largest BR producer and consumer in the world only next to the United States. Sinopec Shanghai Gaoqiao Petrochemical Company Ltd. and CNPC Dushanzi Petrochemical Company Ltd. expanded their BR production lines in 2003. The output of BR in China reached 391 000 tons in 2003, an increase of 16% over 2002. The supply deficit of raw materials in 2004 led to a price rise of BR and a restriction on its development. The output growth was slowed down and the total output was 397 000 tons in 2004. The supply deficit and price rise of raw materials affected the production in some companies in 2005 and the output had a reduction in the first half of 2005. The 30 000 t/a new production line in CNPC Daqing Petrochemical Company Ltd. started production in August 2005. The capacity of BR in the company was increased to 80 000 t/a and the total capacity in China was also higher. With the supply increase and the price downturn of raw materials in the fourth quarter of 2005, the operating rate was restored and the output reached 399 thousand tons, an increase of 0.5% over 2004.     Due to the constant consumption increase in plastic modifiers and tires, the output of BR can not meet the domestic demand. The import amount of BR in China increased remarkably in 2004 and reached 107 thousand tons, accounting for 21.5% of the domestic supply amount and an increase of 67% over 2003. The import amount further increased to 115 thousand tons in 2005, accounting for 22.6% of the domestic supply amount and an increase of 7.5% over 2004. The export amount in 2005 was 37 thousand tons, a drop of 2.6% and the apparent consumption was 478 thousand tons, an increase of 2.6%. The cost increase of BR caused by the sustained price rise of raw materials resulted in a high market price. The average market price of BR in 2005 was 19.5% higher than that in 2004.

    2. Major affecting factors

     (1) Supply deficit and high price of butadiene

In spite of drastic price fluctuations, the crude oil price was maintained at more than US$50 per barrel for most of the time in 2005. Besides, the seasonal overhaul of butadiene units affected the output. The price of butadiene in 2005 therefore hit a historical high time and again, giving support to a firm price of BR. The rational price drop of butadiene in the fourth quarter of 2005, however, also produced an impact on the BR market. The high price and limited supply of butadiene affected the normal production in some BR producers and caused a reduction of the supply amount in some periods of 2005.

    (2) Stable growth of consumption

The production of the BR processing sector in China increased stably in 2005. The industrial output value, the total profit, the export amount and the consumption in 2005 were all higher than those in 2004. The output of rubber products such as tires, cart tires, rubber hoses, rubber belts and rubber shoes increased considerably and the out growth of rubber products was higher than that of BR.

    (3) Sustained increase of import amount

The import amount of BR increased constantly in 2005 and reached more than 110 thousand tons. The self-sufficiency rate had a further drop.

Prospect for 2006

     (1) Stable growth of the global economy and rapid growth of China's economy

The global economy will continue to have a good prospect in 2006, but the growth will be slightly slower than 2005. The oil demand will be brisk and the price of crude oil will maintain at a high level. The price fluctuation of crude oil at a high level will constitute an important factor for the growth slowdown of the global economy in 2006. According to the projection made by some experts, the overall trend of the macro economy in China will still be in the period of rapid development in 2006, but the growth will have a slowdown. The GDP growth will be reduced to around 8%.

     (2) Downturn in period of the prosperity cycle for the petrochemical sector

Judging from the functioning rules of the petrochemical sector, it started to come down in 2005 from the peak of prosperity. It is expected that the petrochemical sector in the world will continue to be in the downturn period of the prosperity cycle in 2006.

     (3) Increase in both supply and demand

The new 100 000 t/a multi-functional unit of low BR rubber and solution-polymerized styrene butadiene rubber in Sinopec Shanghai Gaoqiao Petrochemical Company Ltd. will start production in 2006. (CCR2005 No. 1) Besides, with the increase in the supply amount of raw materials, the price will gradually become rational. The BR production will therefore become normal and the output is expected to reach around 450 thousand tons in 2006.    The consumption in the BR processing sector will continue to have a brisk increase. With the popularization of automobiles in households, the output of automobiles will increase by more than 10% in 2006 and a rapid development of the tire industry will be promoted. A series of infrastructure projects being executed in China including the Three Gorges project, the south-north water transmission project, the Qinghai-Tibet railway project, the west-east power transmission project and the Beijing Olympic Game will provide a huge potential market to engineering tires, rubber hoses and rubber belts. Besides, the demand of BR in plastic modification, shoemaking and other rubber products will also grow considerably. It is expected that the demand of BR in China will reach around 520 thousand tons in 2006.

     (4) Rational price reduction of raw materials

With the completion of the new butadiene unit in CNOOC Shell Petrochemical Co., Ltd. in Huizhou, Guangdong province, the supply deficit of butadiene as major raw material of BR was greatly eased. The price of butadiene in China抯 market will gradually become rational.    Based on the analysis of these factors, with the output increase of BR in China in 2006, the sales in producers will be faced with a potential pressure. Owing to the centralized sales in Sinopec and the forthcoming centralized sales in CNPC, the marketing mode will be more standardized. Due to the rational price reduction of raw materials and the sustained supply amount increase of BR, the average annual price in 20