PBR Price Spread Analysis in North China Market
Snapshot: In North China market, the price spread between the daily highest price and the lowest price lingered at RMB 200-300/mt most of the time, and was rarely higher than this range. In the coming days, with private units going into production, the gross profit may become an indicator of the price spread between the highest price and the lowest price in North China market.
Trading patterns:
1. At present, the main production areas of China’s PBR are concentrated in North China. The PBR output in North China accounts for more than 30% of the total. The main consumption areas are concentrated in North China, East China and South China, where the consumption volume takes up around 80% of the total. Therein, there are many tire enterprises in North China, where the PBR consumption volume accounts for over 45% of the total. Thus, the North China market is the most important and representative market of PBR in China.
2. SCI PBR market price assessment involves the participation of traders including dealings between first-tier traders and second-tier traders and those between first-tier traders and downstream enterprises.
Value of the price spread
For clients who procure spot PBR resources, knowing the price spread change between the highest price and the lowest price may help them forecast the PBR market trend and lower the procurement cost to some extent.
Price spread situation
In North China market, the price spread between the daily highest price and lowest price lingered at RMB 200-300/mt most of the time.
In chart 1, the price spread between the highest price and the lowest price in North China market was over RMB 400/mt, and even reached RMB 800/mt sometimes from July to December 2022. The reason should be analyzed on fundamentals. In H2, 2022, the PBR supply in the market increased, as the newly added capacity at Zibo Qixiang Tenda Chemical was released and PBR units under maintenance resumed to normal production. Meanwhile, the operating rate at downstream tire enterprises rose limitedly pressured by the product inventory. The increment in demand was far smaller than that in supply, failing to bolster the PBR market. Besides, the butadiene price hit a low amid increasing supply, limitedly underpinning the PBR market. Thus, the PBR price fluctuated downwards. During this period, the gross profit of the PBR industry was positive, which offered evidence for the view that private enterprises with flexible production and sales strategies have more advantages in adjustment. In addition, low-price strategy above breakeven point is easier to be accepted by the market, if newly added private capacity wants to open the market as soon as possible amid tepid demand. Therefore, the price spread had been rising for over half a year in chart 1. In 2023, the gross profit fell into negative territory. Private PBR units took maintenance intensively. The supply-demand relation of PBR resources in the market reached a new level of equilibrium. The PBR price was below the breakeven point, bolstering the low-end price. The price spread narrowed to a normal level.
Forecast
At present, the PBR industry gains high gross profit, and enterprises are active in production. But the demand is relatively weak. The current market trend is in line with that in H2, 2022. Besides, the PBR resources produced by the new units in East China may flow into the market, dragging down the price of low-end resources. It is projected that the high price spread is likely to appear again. But in the long term, the price spread is predicted to fall to a normal level with the gross profit shrinking and the price conduction.
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