SBS Price to Show Inverted V-Shaped Trend in H2, 2024 after Climbing Continuously in H1
Snapshot: In H1, 2024, China’s SBS market prices trended up continuously mainly driven by cost. In H2, the SBS market prices are expected to rise first and then drop. Besides the cost, the seasonal characteristics of downstream industries may have a stronger influence on the SBS market prices in H2, 2024.
In H1, 2024, China’s SBS market prices registered upward trends. In June, the feedstock prices rose beyond expectations, weakening the influence of the downstream demand slack season on the SBS market prices. As of June 28, 2024, the market price of 792E in East China closed at RMB 15,450/mt, up RMB 3,350/mt or 27.69% from end-2023. The average price in H1, 2024 was RMB 13,753/mt, up 8.33% from the average price in the entire 2023 and up 3.69% from the average price in H1, 2023.
From the perspective of the price relative level in the past 10 years, the monthly average price of SBS went upwards month by month in H1, 2024 and got higher than the historical average in April 2024.
Market review: The SBS market prices hit 4-year highs.
In H1, 2024, China’s SBS market prices hit 4-year highs bolstered by supply and cost.
In H1, 2024, the overall market price of dry SBS (including road bitumen modification-used dry SBS) showed an uptrend, strongly driven by the cost. For example, the highest price of 792E in East China in H1 was RMB 15,450/mt, hitting a 4-year high. As the feedstock butadiene price trended up continuously, most SBS producers gained weak profits pressured by the cost in H1. In most of Q2, 2024, the marginal profits at mainstream producers were low, dragging down the operating rate. Besides, major SBS units took maintenance as scheduled, so the social inventory remained low for the long term. The overall downstream demand was tepid. Particularly, the operating rates of the modified bitumen industry and the waterproof roll industry recovered slowly. On the whole, the supply and demand were both weak in the SBS market.
As for the oil-extended SBS market, the market price of F875 in Fujian hit a 4-year high at RMB 14,100/mt in mid-June. The rise in the oil-extended SBS price was mainly driven by cost. As the feedstock butadiene price fluctuated upwards, oil-extended SBS producers showed thin interest in production under cost pressure, and the operating rates of major units were relatively low. Therefore, driven by cost and supply, the market price of oil-extended SBS swung up. Yet, the operating rates at downstream TPR plants were relatively low due to few orders and weak profits, so downstream plants mainly purchased SBS on rigid demand.
The feedstock butadiene price picked up constantly, putting higher pressure on the price conduction on the industrial chain. Thus, the profits of the SBS industry declined notably in H1, 2024.
The rise in the butadiene price was the primary support for the uptrends of SBS prices in H1, 2024. The planned and unplanned shutdowns of butadiene units and the lightening of ethylene cracker feedstock were the main reasons for the butadiene supply tightening. At the same time, few deep-sea cargos of butadiene flowed into the Asian market in H1 due to the increase in the ocean freight cost and the fall in the European butadiene supply. Besides, as the operating rates of some butadiene units in Southeast Asia dropped somewhat, the volume of butadiene resources flowing into Northeast Asia especially China declined significantly, leading to a fall in the total butadiene supply. Meanwhile, the price of synthetic rubber futures surged. Bolstered by supply and demand, the butadiene price picked up. As of the end of June, the average price of butadiene in the Jiangsu-Zhejiang market in H1, 2024 was RMB 11,162/mt, up 35% Y-O-Y.
The cost of dry SBS ramped up constantly. Yet, the weak downstream demand hindered the cost conduction to downstream industries, leading to higher profit losses for the SBS industry. In H1, 2024, the average cost of SBS production was RMB 13,443/mt, up 19.38% Y-O-Y, and the average gross profit was RMB -282/mt, down 123.31% Y-O-Y. SBS producers faced profit losses for a long time, weighing on players’ enthusiasm for SBS production.
Under the background of weak supply and demand, the decrement in the supply was more prominent, bolstering the rise in the SBS prices.
In H1, 2024, the supply and demand in China’s SBS market were both weak. The operating rates of downstream modified bitumen and waterproof roll projects were relatively low curbed by the macro fund. The demand in the shoe material industry underperformed. Yet, the decline in the SBS supply was more noticeable in H1, 2024.
In H1, 2024, SBS producers faced profit losses pressured by cost. Planned and unplanned shutdowns of China’s SBS units happened more frequently, leading to a fall in the SBS output in H1. According to SCI, China’s total SBS output was 353kt in H1, 2024, down 19.85% Y-O-Y. Due to continuous profit losses, the start-up of some new units was postponed. Some imported resources flowed into China’s market in H1, but they tightened in Q2 due to presales in Q1. Thus, the supply declined notably. Amid weak supply and demand, the decrement in supply was more prominent, driving up the SBS price.
H2, 2024 outlook: As the feedstock butadiene price is expected to slide, the SBS prices may drop. Yet, as it may be the SBS demand peak season from August to October, and the SBS social inventory is likely to be low, the price trend of SBS may diverge from that of butadiene for the short term.
The cost is predicted to be still the primary driver for the SBS prices.
The international crude price is expected to rise in Q3, 2024 but drop in Q4. Attention should be paid to the actual demand in Q3. If the demand peak season underperforms, the crude oil price is highly likely to trend down. In Q4, with the supply rising but demand falling, the crude oil price may hit the annual low. The feedstock butadiene price is expected to drop, leading to a fall in the cost of SBS production.
Specifically, the maintenance of China’s butadiene units is expected to weaken in H2, 2024, and new units may come on stream in Q4, 2024, supplementing China’s butadiene supply, thereby weakening the support for the SBS price. As for the imports, the butadiene price in Northeast Asia may be high, attracting some deep-sea cargos for arbitrage, so some imported butadiene resources from Europe and the U.S. are expected to flow into the Asian market. Besides, there may be some resources in Southeast Asia under negotiation, supplementing the supply in Northeast Asia. However, some new downstream units are expected to go into production in H2, 2024, and the increment in the theoretical downstream consumption volume may be higher than that in the butadiene supply, so the demand is likely to bolster the butadiene price to some extent. It is projected that the highest butadiene price may appear in July, and the butadiene price is predicted to linger at RMB 10,000-13,500/mt in H2.
It is the traditional demand peak season from August to October, when the SBS oversupply may ease somewhat, strongly bolstering the SBS prices.
There may be fewer SBS units taking planned turnarounds in H2, 2024. Yet, curbed by the butadiene price, the profits of the SBS industry are expected to hardly improve in the short to medium term, so the increment in supply may be limited. Besides, due to the notable production cuts in H1, the social inventory is relatively low. As for demand, downstream industries are expected to enter the traditional peak season in August. Particularly, the modified bitumen and waterproof roll industries may escape from the influence of the rainy season. Downstream consumption of SBS is expected to accelerate, underpinning the SBS market and changing the tight supply situation. From July to September, the overall SBS prices are likely to edge up. In Q4, the feedstock butadiene price is predicted to drop. Additionally, major producers and traders may react before the downstream industries enter the slack season, so the SBS market prices are expected to go downwards ahead of time.
It is envisaged that the price trend of SBS in H2 may be mainly consistent with that of butadiene. The fluctuation range of the SBS price in H2 is expected to be narrower than that in H1, but the average price in H2 may be higher than that in H1. In Q3, the SBS price is likely to inch up, but it will possibly trend down affected by the weakened demand and the fall in the feedstock price. The market price of 792E in East China may hit a high in August, fluctuate narrowly in September, and hit a low in December, which is likely to linger at RMB 12,800-16,000/mt in H2, 2024.
Risk notice: The operating rate of the SBS industry is highly affected by the changes in profits. The feedstock butadiene price has a direct influence on the SBS supply.
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