HOUSTON — Butadiene rubber spot prices in Asia are at a record high, supply is tight and demand remains strong.
That could lead to further price hikes and scarcities in the marketplace for the key ingredient used in synthetic rubber production.
According to a variety of sources, including the International Conference on Information Systems, demand from factories in Asia is raising the price of butadiene, which is used in SBR, polybutadiene, nitrile rubber and rubber chemicals.
That´s not good news, especially for the tire industry, which relies heavily on the chemical, according to Bill Hyde, director of C4 olefins and elastomers for Houston-based Chemical Marketing Associates Inc. But it´s not as bad as it may seem.
"It´s a short-term thing," the analyst said, referring to the steep price hike.
The price for spot butadiene, which hit its high in mid-January, is still working its way down, so it could be another month or so before buyers see prices ease a bit, he said. The price still will be high, but not as high as it is now, he predicted, and the price of rubber also should begin dropping soon.
"Right now, BR is very tight in Asia," Hyde said. "Part of the reason is the regional shortage of butadiene. It also appears that BR is shifting tighter on a more fundamental basis as well. The BR price has risen relative to SBR in recent months."
Butadiene spot prices in Asia have doubled since September, according to the ICIS.
"I think the impact of the spot prices and supply shortages depends more on how much your supply portfolio is import based," Hyde said.
"For example, there are large and small consumers in parts of China that are completely supplied by domestic production so they are fully supplied. There are some large consumers in parts of Asia who are hurting from a supply basis because part of their portfolio relies on imports.
"Most of them see the impact of the high prices because a common contract mechanism in the region is to take a discount off the monthly average spot price."
Sources at several synthetic rubber companies, who asked for anonymity, said three butadiene producers have put customers on allocation in February.
At least one tire maker, Michelin, has seen a tightening in supply of butadiene in the last month, which a spokeswoman said is caused by limited capacity and worldwide demand. "Supply is tight, but Michelin is managing that," she said.
While not having a problem with supply, Bridgestone/Firestone has felt an impact from butadiene price increases.
"These are record high levels of butadiene prices," a company spokesman said.
The problem is a simple case of supply and demand economics, he said, driven by a global marketplace with growth in areas such as Asia. He said even a small increase in butadiene feedstock prices has an impact on costs because of the high concentration of butadiene in synthetic rubbers used in tires.
"It´s not a small part of the equation," the BFS spokesman said. "When the price goes up, we feel it."
Goodyear, which doesn´t talk about individual raw materials, has not seen any shortages with butadiene, according to a spokesman.
Hyde said the spot price generally doesn´t impact current contracts for the feedstock. Spot parcels are often only needed on top of contracts when additional butadiene is needed.
"Butadiene contracts are generally at least a year and usually longer," he said. "It is not unusual for a contract to be 2-3 years with a provision that if neither party objects, the contract will be automatically renewed on a year-to-year basis."
In terms of supply, he said the availability of butadiene could improve in the next few months.
Three factors played a role in the supply problem and rise of spot prices: The late December explosion at a Mitsubishi Chemicals cracker in Japan, which limited butadiene production there; the difficulties Titan Chemicals Corp. Bhd. in Malaysia has had starting up a new butadiene unit; and the operating issues Formosa Chemicals & Fibre Corp. of Taiwan had in January when it was forced to declare force majeure on butadiene production.
Only the Formosa issue has been completely resolved.
Bruce Meyer, Rubber & Plastics News Staff, contributed to this report.