NBR Price Shows an N-Shaped Trend in H1, to Open High but Then Drop in H2
Introduction: NBR market price experienced an N-shaped trend in H1, 2024. Cost side supported NBR price increase, while demand side dragged on that. The further release of supply will put pressure on the market, and cost support may drop. NBR price may open high but then drop in H2, 2024.
China’s NBR price experienced an N-shaped trend in H1, 2024, which was basically consistent with the price trend forecast in 2023-2024 China NBR Market Annual Report. However, the price trend in June deviated from the annual report forecast due to unexpectedly high feedstock price. Taking the price of 3305E produced by PetroChina Lanzhou Petrochemical (in cash, self-delivery, including tax, similarly hereinafter) in the East China market as an example, the average price from January to June 2024 was RMB 14,326/mt, down 3.07% Y-O-Y. On June 21, PetroChina Lanzhou Petrochemical’s 3305E in the East China market closed at RMB 15,500/mt, which increased by 10.32% from the end of 2023.
Butadiene price continued to rise in Q1 of 2024, which boosted NBR market price. But downstream demand recovery did not meet expectations, and NBR supply was abundant. The weak fundamentals limited the upside potential of NBR market price. In April and May, although butadiene price was still high and some butadiene units underwent maintenance, it was difficult to offset the drag on the market caused by weak demand. Due to poor orders and pressure from terminal manufacturers to lower prices of rubber products, the order-taking ability and profits of small and medium-sized downstream enterprises dropped, which in turn affected NBR downstream consumption. Therefore, progress in trade negotiations was slower in the market, and NBR market price was negatively affected. In June, cost became the dominant factor once again in NBR market price. In the first half of the month, butadiene price experienced a significant upward trend due to tight supply and the notable increase of synthetic rubber futures. Under the support of cost, NBR market price reversed its decline and rose. In addition, the operating rate of some NBR units in East China dropped due to the pressure of cost, and the scheduled maintenance in Northwest China also boosted the confidence of traders. However, the downstream demand continued to be weak, and downstream users’ acceptance of high-priced goods was insufficient. Therefore, the price increase of NBR was far less than that of butadiene.
Butadiene Price continued to rise, lending support to NBR price from the bottom line.
The rise in butadiene price was the main reason supporting the two rounds of NBR price increases in H1, 2024. The scarcity of goods and rising prices in the butadiene market was throughout the first half of 2024. On the import side, the supply of deep-sea cargoes to the Asian market was very limited in H1 of 2024 due to the increase in ocean freight costs and the reduction of European supply. In addition, the operating rate of some butadiene units in Southeast Asia also declined, and the number of butadiene flowing into Northeast Asia also decreased, especially that flowing into China. The low operating rate of cracking units, unexpected shutdowns of some units, and the delay in the restart of some maintenance units all led to insufficient domestic butadiene supply. The tight supply drove the butadiene market price to continue to rise, and the production cost pressure of NBR continued to increase. By June 20, the butadiene price in Jiangsu and Zhejiang markets had risen by 52.68% from the end of 2023, and NBR gross profit was approaching negative values.
The supply and demand imbalance limited the growth of NBR market price.
From the supply side, although there was relatively intensive maintenance of NBR units in Q2 of 2024, the operating rate of domestic NBR units in Q1 was at a high level compared with the same period last year. However, due to weak downstream demand, the market's inventory reduction speed was slower. SCI estimated that China's NBR output would increase by about 1.29% in H1, 2024. Since H2 of 2022, NBR market price has been unable to return to previous high levels due to abundant supply.
In terms of demand, NBR is a product for the end of the real estate industry. The decline in the completed area was negative for NBR market. What’s more, the demand constraint brought by the decline in new construction area led to a lack of confidence in demand among some operators. The decline in the number of traditional energy vehicles was one of the reasons leading to poor demand for NBR. In addition, the decline in the price of some end products put pressure on the reduction of rubber product prices, weakening the ability of small and medium-sized downstream enterprises to accept orders and reducing their profit margins. Therefore, they had limited acceptance of high-priced NBR, which put pressure on high-priced trading in the NBR market.
Looking ahead to H2 of 2024, it may still be difficult to change the fundamentals situation of supply exceeding demand. Butadiene price is expected to have a downward trend. NBR market price may open high but then drop in H2 of 2024.
The domestic supply of NBR is expected to have an upgrading expectation, and the growth rate of demand may still be slower.
On the supply side, the overall supply of goods will be abundant. PetroChina Lanzhou Petrochemical’s 50 kt/a production line is scheduled to stop for maintenance for about 25 days in early July. The expansion of some NBR devices in East China is also underway, and it is expected that the domestic NBR output will increase by about 5% compared with the first half of the year.
On the demand side, The Third Plenary Session of the 20th Communist Party of China (CPC) Central Committee, will be held in July, and there will be a large release space for trillions of long-term bonds in 2024. The expectation of a favorable macro environment may remain unchanged, but it will take time for the real economy to have a significant improvement. It is expected that the consumption growth rate of NBR may still be less than the supply. The overall fluctuation range of NBR market price may still be at a low level amid supply pressure.
It is expected that Butadiene price may be high in Q3, and may drop in Q4.
In general, NBR market price may open high but then drop in Q2 of 2024. For the third quarter, the downward adjustment space for butadiene price may be limited, and it will continue to provide support for NBR price from the cost side. In addition, PetroChina Lanzhou Petrochemical’s 50 kt/a production line will undergo maintenance in July. Considering the traditional consumption peak season of "Golden September and Silver October," some downstream users may start purchasing from August, and the supply and demand imbalance is expected to narrow, which may be also beneficial to the price recovery of NBR. In the fourth quarter, butadiene price may show an obvious downward trend, and the cost side is bearish for NBR prices. In terms of fundamentals, some units in East China may expand, and downstream demand may show a seasonal decline trend. The oversupply pattern will also put pressure on NBR market price. Taking 3305E produced by PetroChina Lanzhou Petrochemical as an example, SCI predicts that the market price will hover within the range of RMB 13,500-16,000/mt in H2 of 2024, and the average price will move down from that in H1 of 2024.
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