Demand for SBR Increased Steadily
By Gao Yiwen

  1   Rapid consumption growth

Consumption of styrene-butadiene rubber (SBR) in China was 747
thousand tons in 2006, an increase of 21% over 2005, with faster
growth than the average rubber consumption growth. The output
of SBR was 571 thousand tons in 2006, an increase of 11% -
emulsion-polymerized SBR output was 563 thousand tons and
solution-polymerized SBR output was around 8 thousand tons. The
100 thousand t/a SBR unit (including 60 thousand t/a low
cis-polybutadiene rubber) of Sinopec Gaoqiao Petrochemical
Company Ltd. started production in August 2006. (CCR2006, No.
26)
   Owing to the supply deficit and high price of natural rubber
in 2006, SBR partially replaced natural rubber and the demand
for SBR in the domestic market increased rapidly. The output of
SBR in China was 571 thousand tons in 2006, an increase of 10%
over 2005 -much lower however than the consumption growth of 21%.
So the import amount therefore jumped. The amount of SBR imported
by China was 187 thousand tons in 2006, an increase of nearly
60% over 2005.
   Generally speaking, with the alternation of brisk seasons and
slack seasons of downstream products, SBR consumption also has
brisk seasons and slack seasons. The months from March to June
are the golden season for the production of rubber shoes and
tires, so the SBR consumption also has an increase. July, with
its high temperatures, is the overhaul period for downstream
plants and the slack season for rubber shoe consumption, so SBR
consumption also reduces. SBR consumption returns to normal in
the months from August to November and drops again after December
because of the approaching New Year holiday. The SBR consumption
trend in the first half of 2006 was basically identical to
previous years. It was however different in the second half of
2006. Consumption fell in the months from September to November
and had a dramatic recovery in December. The main reason was the
impact of the price of natural rubber, which saw a drastic
reduction in the second half of 2006 and picked up only in
December, producing a great impact on the market price and the
consumption of SBR.


  2 Violent price fluctuation

Due to historical reasons, many clients are accustomed to the
use of natural rubber. Natural rubber indeed has good properties
overall. But the price of natural rubber is usually slightly
higher than SBR. General-purpose SBR, as a synthetic rubber, is
interchangeable with natural rubber. Changes in the natural
rubber market are therefore highly related to the SBR market.
The major production region of natural rubber is Southeast Asia.
The region suffers great impacts from extreme weather and also
from changes in the market supply/demand and in prices of the
futures market. The price of natural rubber therefore has great
fluctuations.
   Natural rubber was in short supply and saw a sustained price
rise in the first half of 2006. The price once reached a peak
of RMB28 000 per ton at the end of May and beginning of June.
As the price of natural rubber is much higher than that of
synthetic rubber, some downstream plants changed their product
formulas and increased the proportion of synthetic rubber, so
consumption of SBR increased. The SBR supply was limited, and
the price of its main raw material butadiene also increased
constantly. Pushed by the increase in both cost and demand, the
market price of SBR started to increase and reached an all-time
high of nearly RMB20 000 per ton in June. The price of natural
rubber came down quickly in the second half of 2006. The price
rise of butadiene, however, supported the price of SBR, so the
reduction of the SBR price was relatively small. The price of
natural rubber was close to the price SBR. Downstream plants
reduced the consumption of SBR and also cut down inventory to
avoid market risks. As a result SBR consumption fell. This was
the main reason for the SBR consumption in the second half of
2006 being lower than in the first half. The price of natural
rubber went up in December and the price of butadiene came down,
giving back SBR's price advantage over natural rubber. There was
also a need to replenish inventory. SBR consumption therefore
became brisk once again.


  3   Raw material price rise

The main raw material for SBR is butadiene. The constant price
rise of natural rubber in the first half of 2006 led to a price
rise of SBR. The price of butadiene was however relatively low.
SBR producers therefore reaped fat profits. The price of natural
rubber fell fast and the price of butadiene rose in the second
half of 2006. The margin of SBR producers was greatly narrowed
until the price of butadiene declined and the price of natural
rubber rose at the end of December.
   Butadiene is commonly produced as the C4 byproduct of
ethylene cracking units. It is mainly used in the production of
synthetic rubbers, latex, synthetic resins and thermoplastic
elastomers. SBR production is the main use of butadiene. The
butadiene market therefore can have great impact on SBR
production.
   With the development of China's petrochemical industry,
several ethylene units will be constructed during the Eleventh
Five-year Program period (2006-2010). Related butadiene units
will also be constructed. The capacity to produce butadiene is
expected to be increased considerably and reach 2.64 million t/a
in 2010. That capacity expansion will promote the development
of SBR production.


Price reduction in 2007

The demand SBR in China will further increase in 2007. The price
of natural rubber will still be high. When the substitution of
SBR for natural rubber reaches a certain proportion, however,
there will be restrictions in technology. The amount of SBR
substituted for natural rubber is estimated to be around 70
thousand tons a year. Due to the completion of new units, the
SBR market will likely go into oversupply in 2007.
   Two SBR units with a total capacity of 150 thousand t/a will
start production in 2007. SBR produced in the new units is
expected to enter the market in the second half of 2007. The SBR
market trend in the first half of 2007 will be similar to the
trend in 2006. After SBR produced in the new units enters the
market, the supply will increase and the price will decline
gradually.
   The economy in China will sustain its stable development in
2007. The development of related sectors such as the automobile
sector will promote a growing demand for SBR. At the beginning
of January, SBR still benefited from the 2006 price rise of
natural rubber. The market price increased further by RMB300-500
per ton. In late January, with the coming of Spring Festival,
some downstream plants were unable to bear the unduly high price
of natural rubber and reduced production or suspended production
ahead of schedule. The demand was down and the market price rise
of SBR was curbed. The supply and demand of SBR was balanced
during the Spring Festival holiday and the market price only
dropped slightly.
   With the demand growth and the limited supply in the first
half of 2007, there will be a supply deficit of SBR and the price
will increase gradually. The second quarter is the prime period
for the overhaul of petrochemical units. With the overall start
of overhaul, the supp