Dry SBS and Road Modification-Used SBS Market Performance

SCI99

2019-07-16

Dry SBS and Road Modification-Used SBS: H1, 2019 the Market Underperformed

In H1, 2019, China’s dry SBS and road modification-used SBS markets were stable-to-dropping curbed by many factors. If the prices can reach the level as high as previous years with the coming of the peak road construction season in H2, 2019? What influences will be caused by the operation of the newly added units? These should be paid attention to.

In previous years, SBS performed better in the profit, demand increment and trading atmosphere than other rubber. However, in H1, 2019, the dry SBS market was stable-to-dropping. Taking dry SBS at Sinopec Baling Company as an example, the prices of dry SBS 792 at Sinopec Central China Marketing Company were RMB 13,200-14,100/mt. The price adjustments were infrequent and small in H1, 2019. On the whole, the price trend was flat than that in H1, 2018.

The performance of China’s dry SBS and road modification-used SBS markets was as follows.

First, the supply volume increased somewhat, and the end social inventory hovered at highs. In H1, 2019, China’s SBS total capacity and output increased. The 30kt/a SBS unit at Ningbo Jinhai Chenguang Chemical was put into operation in June. China’s SBS capacity totaled 1,180kt/a, and the output was 410kt. As the demand for SBS from the TPR shoe material industry continued to shrink, China’s some units were switched to produce other products. In H1, 2019, most of the social inventory was transferred to the end users through the long-term contracts and the invitation to tender. However, at the end of Q2, 2019, the downstream procurement volume trended down limited by the capital and weather. Thus, the resources at traders accumulated to some extent. Overall, by the end of Q2, 2019, the social inventory was relatively high due to the low downstream operating rate.

Second, the distribution of profits was seriously uneven between producers and traders, so the trading activities were unsmooth. As for producers’ profit, in H1, 2019, the average gross profit of dry SBS was RMB 1,888/mt, up RMB 443/mt than that in H1, 2018. The profit at producers was favorable, while that at traders was poor. Due to the limited price fluctuations in H1, 2019 and the increase in the producer direct sales rate, the living space of traders was squeezed. As a result, many traders suffered profit losses.

Third, the end demand was less than expected, and the demand for road modification-used SBS from the highway construction filed was delayed. In H1, 2019, the actual downstream demand was less than expected in early 2019. As the price spread between dry SBS and oil-extended SBS was large, the oil-extended dry SBS granulation had no cost advantages. Thus, the volume of dry SBS used in the shoe material making dropped greatly. The consumption of road modification-used SBS was limited in the modified bitumen industry, so the end inventory was high. It was still the capital shortage that curbed the highway construction.

H2, 2019 market forecast

In previous years, the prices of road modification-used SBS increased by above RMB 1,000/mt when the demand was in the peak season. Taking H2, 2018 as an example, the ex-works prices of road modification-used SBS 791-H at Sinopec Baling Company increased to RMB 16,300/mt. The peak demand season of road modification-used SBS may be delayed, and the prices will hardly increase to the high level in H2, 2019. The supply will become a bearish factor. Although the units at PetroChina Dushanzi Petrochemical will take overhauls, there will be units at Ningbo Changhong Polymer Scientific and Technical, Zhejiang Zhongli Synthetic Material Technology and Huizhou LCY Elastomers put into operation in the future. Thus, the price increment in the peak demand season will be affected. Under such circumstances, China’s dry SBS and road modification-used SBS market prices may first trend down and then rise, and the price increment will be limited in Q3, 2019. In Q4, 2019, the market will be lack of bullish factors with the end of the highway construction. Moreover, the newly added capacity will be successively released, and PetroChina Dushanzi Petrochemical will complete the maintenance. Thus, market participants should be alert to large fluctuations amid the bearish atmosphere.

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