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www.icis.com 1 CHALLENGES FACING THE SYNTHETIC RUBBER MARKET IN ASIA IN 2018 ANN SUN SENIOR ANALYST ANALYTICS & CONSULTING, ICIS, ASIA
www.icis.com 1
CHALLENGES FACING
THE SYNTHETIC RUBBER
MARKET IN ASIA IN 2018
ANN SUNSENIOR ANALYST
ANALYTICS & CONSULTING,
ICIS, ASIA
www.icis.com 2
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2018 market overview & outlook
Key driving factors
Supply and demand structure
Mid-term outlook
Butadiene supply and demand
Margin reallocation of the BD-rubber-tyre value chain
China tyre trend
Agenda
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Overview of butadiene-rubber market over the past decade
U Shape Price One-way downward price ?
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China drives the rubber world
45% The largest
consumption region
NORTHEAST ASIA
2017 PBR Consumption Share
15%Potential consumption
area
SE ASIA & INDIA
32% The largest
consumption country
CHINA
3,631 KTA
Source: ICIS SUPPLY & DEMAND DATABASE
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2018 Market Overview & Outlook
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Challenges in 2018
Butadiene China Tyre Demand Natural Rubber Policies
SUPPLY
Seasonal maintenance,
regional S&D
DEMAND
Absence of policy in
automobile industry,
uncertainties from
trade barriers
SUBSTITUTION
Oversupply – high
yield, high inventories
UNCERTAINTIES
Intensive introduction
of environmental
policies, trade war
between China and US
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Rare price trend conflict within the region
0
5,000
10,000
15,000
20,000
25,000
30,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18
Local BD prices in China VS Asia prices
Gap(East China-CFR NEA) East China (right axis) CFR NEA (right axis)
Source: ICIS
CN
Y/TO
NN
E CN
Y/TON
NE
China’s local butadiene (BD) prices are usually higher than import prices, but this is
changing in 2018
Regional supply and demand is major reason
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BD supply capped by maintenance in Q2 2018
BD capacity disruption due to maintenance in Asia
KT KT
Source: ICIS
BD supply drops due to maintenance in 2018, close to 2016 numbers
More maintenance concentrated in Q2 2018
0
50
100
150
200
250
300
350
400
450
2016 2017 2018E
0
10
20
30
40
50
60
70
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017 2018E
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Supply from new BD plants lower than expectation
50 kta, Dec 2017
BLUESTAR
65 kta, Jan 2017
SHENHUA NINGXIA COAL
100 kta, Sep 2017
JIANGSU SAILBOAT
180 kta, Apr 2018
CSPC No 2
Source: ICIS SUPPLY & DEMAND DATABASE
Delayed delivery of some new plants due to technical issues
BD production for the above four plants in 2018 is estimated at 235kta, utilisation rate
around 60%
TOTAL CAPACITY: 395 kta
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Tyre: China’s demand may slow down in 2018, a period of
adjustment
Absence of policies will allow the
passenger car market to show mild
performance
Heavy truck market is expected to
remain weak after strong expansion in
2017
If the global economic recovery
continues, China’s tyre exports will
stay at good levels
Trade barriers add uncertainty to
China tyres market, but mostly from an
overall perspective rather than from the
industry itself
0
2
4
6
8
10
12
14
1
2
3
4
5
6
7
8
2013 2014 2015 2016 2017 2018E
China tyre production
Production YoY
%
10
0 m
illio
n
Source: CHINA RUBBER INDUSTRY ASSOCIATION
www.icis.com 17Source: CHINA ASSOCIATION Of AUTOMOBILE MANUFACTURERS
%
Mild performance in auto market
-15
-10
-5
0
5
10
15
20
2013 2014 2015 2016 2017 2018E
China auto production growth rate
PV CV TOTAL
Expired purchase tax cuts of small-engine PV
Passenger car
Commercial vehicle
Management of overloading in 2016-2017
Eliminate yellow marking vehicles
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(10)
(5)
0
5
10
15
20
2013 2014 2015 2016 2017
China tyre export growth rate
PCR TBR
%
Source: CHINA CUSTOMS, XE.COM
Sino-US trade war compounded existing trade barriers to
China tyres
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
CNY depreciation against the dollar
China’s tyre market has extensive experience with trade barriers, and has adapted to it
China’s tyre factories have successfully set up overseas; these ventures could be
replicated in other industries
Most market uncertainties caused by the trade war between the US and China are from
an overall perspective rather than from the industry itself
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( USD to CNY )
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NR: Impact to SR market deepens
2018 is high-yield year for NR, and inventory problem needs to be resolved
Overall price is expected to be weak, but unlikely to fall to the previous low point
Substitution of NR to SR returns, but limited
Substitution impact on SR volumes shifts to impact sentiment
-800
-600
-400
-200
0
200
400
0
400
800
1,200
1,600
2,000
2,400
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
NR and SR prices reversed
NR(SMR20)-SBR1502 (right axis)
NR(SMR20)
Source: ICIS, MALAYSIAN RUBBER BOARD
USD
/TO
NN
EU
SD/TO
NN
E
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Environmental policies: changing short-term S&D
Enforcement differs in different provinces
Mismatch between supply and demand
After a period of time, market elasticity will stabilise
this imbalance
Corporate operating cost will increase
Most synthetic rubber producers will complete
installation of new environmental equipment after
2018; Temporary shutdown will decrease in the
future
Accelerate industry reshuffling and reorganisation
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Asia’s rubber consumption recovering
PBR Consumption Growth Rate SBR & SBCs Consumption Growth Rate
Source: ICIS SUPPLY & DEMAND DATABASE
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2014 2015 2016 2017 2018E
-5%
0%
5%
10%
15%
2014 2015 2016 2017 2018E
Asia’s consumption CAGR (2014-2018): PBR 5.1%, SBR &SBCs 2.0%
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Mid-to-long term Market Outlook
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BD: more new plants coming, mostly from China
Source: ICIS SUPPLY & DEMAND DATABASE
Country Site Company Craft Capacity (kta) Start-up Note
China Guangdong CNOOC AND SHELL PC C4 extraction 180 Apr-18 No 2
Indonesia Banten PT PETROKIMIA BUTADIENE C4 extraction 37 Jun-18 Expansion
S.Korea Yeosu LOTTE CHEMICAL C4 extraction 20 Q3 2018 Expansion
China Zhejiang ZHEJIANG PETROCHEMICAL C4 extraction 200 Late Q4 2018
China Jiangsu NANJING CHENGZHI CLEAN ENERGY On-purpose 100 H2 2019
Malaysia Pengerang Johor PETRONAS RAPID C4 extraction 185 2019/2020
China Guangdong SINOPEC ZHONGKE REF AND PC C4 extraction 120 Early 2020
China Liaoning HENGLI PC C4 extraction 140 Early 2020
China Shandong WANHUA CHEMICAL C4 extraction 50 H1 2020
China Jiangsu SHENGHONG REFINING & CHEMICAL C4 extraction 150 H2 2020
Philippines Batangas JG SUMMIT OLEFINS CORP C4 extraction 80 H2 2020
China Fujian SINOCHEM QUANZHOU PETROCHEMICAL C4 extraction 120 2020
China Liaoning LIAONING BORA PETROCHEMICAL C4 extraction 140 2020
China Hubei SINOPEC-SK WUHAN PC C4 extraction 60 2020 Expansion
China Fujian FUJIAN GULEI PETROCHEMICAL C4 extraction 140 Early 2021
China Zhejiang ZHEJIANG PETROCHEMICAL C4 extraction 200 2021 No 2
China Liaoning NORTH HUAJIN CHEMICAL IND. C4 extraction 120 2021/2022
China Zhejiang ZHEJIANG SATELLITE PC C4 extraction 60 2021
China Inner Mongolia JIUTAI ENERGY GROUP On-purpose 70 2022
China Guangdong PETROCHINA/PDVSA C4 extraction 100 Early 2022
China Hebei TANGSHAN RISUN CHEMICAL C4 extraction 150 2022
TOTAL 2422
www.icis.com 24Source: ICIS SUPPLY & DEMAND DATABASE
Trade flow is going to change – China has potential to
be a net exporter
-1,000
-500
0
500
1,000
BD balance by region
ASIA AND PACIFIC NORTH EAST ASIA
MIDDLE EAST AFRICA
FORMER USSR EUROPE
SOUTH & CENTRAL AMERICA NORTH AMERICA
KT
-400
-320
-240
-160
-80
0
0
1,000
2,000
3,000
4,000
5,000
6,000
BD balance in China
Balance (right axis) Production
KT
China has potential to be a net exporter; needs to keep an eye on ethylene balance
To export BD is more economical than to export elastomers for China due to tax refund
policy
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After industrial adjustment, China’s tyre market will have
a bright future
MADE IN CHINA 2025 THE BELT AND ROADTYRE LABELLING
Industrial upgrading strategy
focusing on high-tech fields
Initiative focusing on regional
connectivity and cooperationRegulation to introduce labelling
requirement
Opportunity for China’s tyre sector to upgrade, improve production processes and quality
New opportunities to export China tyres and the technology
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Margin reallocation in the industry chain
BD SR Tyre
NOW FUTURE
BD SR Tyre
BD producers have larger margins,
except on-purpose producers
Difficult for stand-alone synthetic
rubber producers to survive
Tyre factories also suffer from the big
rise and fall of rubber prices
Competition among BD producers
expected to more fierce
SR producers will have better margins
due to cuts in overcapacity and expansion
of butadiene
Tyre factories will enjoy profitable market
after reorganisation
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Conclusion
In the near term, NR prices will determine sentiment/demand for SR, while BD’s
fluctuating effect on SR will weaken
China’s environmental protection policies influence on short-term pricing, and trade war
add uncertainties to the market
Synthetic rubber prices will remain stable in 2018
In longer term, new BD plants in Asia will change the global trade flow picture
Supply chain optimisation will be key objectives of synthetic rubber producers
China’s tyre industry is undergoing an adjustment period
Margins will be reallocated across the BD-rubber-tyre value chain
www.icis.com 28
Ann Sun
Senior Analyst, ICIS Analytics & Consulting
+86-21-5155 0851
