SBS Industry to Embrace Rapid Adjustment
Snapshot: In 2023, China’s SBS capacity continued to expand, aggravating the oversupply. The basic logic of the SBS market changed, accelerating the adjustment in all links of the SBS industry.
1. SBS producers may actively seek changes in operation directions and innovate business models.
From 2024 to 2028, China’s SBS market is expected to be in a peak period of expanding capacity. In the next five years, there may be 295kt/a capacity to be newly added. In particular, the unit at Shanghai Jinshan Baling New Material may go into operation in Q4, 2024, which may further affect the supply-demand relation in the SBS market. With the market competition intensifying, SBS producers are likely to seek new opportunities actively. As the units can produce multiple types of products, some SBS producers may develop high-end and differentiated hydrogenated products, while some are expected to develop and produce LCBR and SSBR.
For producers which develop based on SBS products, the traditional planning system and agency system may be difficult to adapt to the requirements of market development. In order to survive, producers may seek more model innovations and increase exports. Market behaviors including OEM production or customized production, etc. may increase.
2024-2028 China Newly Added SBS Capacity
2. The reshuffle in the trade link may accelerate. The scale of traders is likely to decrease.
The SBS market has completed the transformation from a resource-based market to a pure buyer’s market. As market competition intensifies, profits in all aspects continue to shrink. In order to adapt to competition, it has become a trend for producers to reduce the profits in the distribution link. Since the second half of 2023, some distributors have already shown a trend of reducing trade volume. Through changes in distribution profits, the overall scale of traders in the market may gradually shrink in the future.
Traders may also seek innovation in their business models. For enterprises with certain financial strengths, they may add many product lines of rubber types with better profits or futures to achieve multi-product hedging or profit complementation, thereby getting through the industry transformation period steadily.
3. Downstream bargaining power may increase. The traditional purchasing models are likely to change.
The rapid supply growth has indirectly increased the bargaining power of downstream enterprises, thereby challenging the traditional trade model. The purpose of winter storage has always been to reduce procurement costs on the one hand, and to ensure supply during the peak season on the other. With supply growing, only one purpose of winter storage remains. In the future, downstream companies may pay more attention to the price of winter storage, and the traditional winter storage link may show weaker importance. At the same time, as downstream bargaining power increases, more enterprises are seeking to buy at low prices, which may gradually change or reduce the previous long-term contracts and framework agreement systems, thereby challenging the traditional trade model.
Overall, due to changes in the basic logic of SBS market operations, the change and adjustment of the SBS industry may accelerate. The market is undergoing a process of restructuring from the supply-demand imbalance to the supply-demand balance. It is expected that after 2026, with the reduction of newly added capacity in China and the market shuffling and gradually digesting excess capacity, the SBS market may return to normal operation.
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