H2 2022 China PBR Market Recovery - Demand Rally
Key words: PBR, semi-annual report, price, supply, demand, import, export
Introduction: In the first half of 2022, China’s PBR market prices moved sideways. In the second half of 2022, weather demand can rally is predicted to be the key to the price increase.
Market review: repeated price fluctuations within a narrow range
In the first half of 2022, China’s PBR prices fluctuated within the range of RMB 2,000/mt. Taking the HCBR 9000 price in the North China market as an example, the highest price was RMB 14,750/mt in mid-June, up 8.46% from the highest in the first half of 2021. The lowest price was RMB 12,850/mt in mid-January and H1 March, up 24.15% from the lowest in the first half of 2021. The average price in the first half of 2022 was RMB 13,697/mt, down 3.54% from the second half of 2021 and up 12.83% from the first half of 2021.
In the first half of 2022, the price uptrend of crude oil exerted high cost pressure on the industrial chain, and some PBR units suspended production or underwent maintenance during a period. Therefore, the overall PBR price was relatively high. However, downstream demand curbed the continuous increase in PBR prices. Consequently, PBR market prices fluctuated within RMB 2,000/mt in the first half of 2022.
China’s PBR market price moved sideways in the first quarter of 2022, and the overall mainstream price went lower from the fourth quarter of 2021. In January, as butadiene prices were low, some private PBR producers increased output. Against the backdrop of the high evaluation price of PBR, anticipated supply increase and tepid demand from the downstream all-steel tire market, PBR prices went down. In the first half of February, the prices of crude oil, butadiene and Shanghai natural rubber futures rose, so PBR market prices ramped up. However, in the second half of February, the increment in butadiene prices became smaller, and the prices of Shanghai natural rubber futures went down. Besides, the recovery of downstream demand was slow, and PBR inventory accumulated somewhat during the holiday. As a result, mainstream PBR market prices fell once more. In the first half of March, the surge in international crude oil prices caused a cost increase, and the prices of Shanghai natural rubber futures significantly rose in a day. Therefore, PBR prices rebounded. However, fundamentals did not change notably, and downstream plants had a weak interest in the procurement of high-priced PBR resources. In the middle of March, international crude oil prices fell, and the prices of Shanghai natural rubber futures greatly dropped. Besides, some regions suffered from transportation limitations, and some downstream tire plants suspended or axed production. As a result, downstream plants had a weak interest in procurement, and PBR market prices went down.
China’s PBR market prices showed a reversed N-shaped trend in the second quarter of 2022. In April, many PBR units suspended or reduced production, pushing PBR market prices up. However, tepid downstream demand and unsmooth transportation weighed on the PBR market. Therefore, PBR market prices fell after rising. In the first half of May, soft demand led to a continuous decrease in PBR market prices. In the second half of May, with PBR prices decreasing to a relatively low level, some traders purchased PBR resources, driving the market negotiation prices up. Besides, butadiene prices ramped up, and some PBR units underwent scheduled maintenance. Therefore, PBR prices rose. In June, some PBR units were shut, and butadiene prices were high, facilitating the PBR market. However, traders’ replenishment faded away after the PBR price rose to a high level. At the same time, downstream demand did not improve. As a result, negotiations on high prices came under pressure, and PBR prices went down.
Fundamentals review: decreasing profit and demand and increasing supply
Reasons for the fundamental data changes as seen from the above table were as follows.
The profit notably dwindled due to the significant rise in crude oil prices. In the first half of 2022, international crude oil prices greatly rose, and butadiene prices went up accordingly. The cost continuously rose, while the increase in PBR prices was not obvious. As a result, the industrial profit declined. According to SCI, in the first half of 2022, the theoretical average profit of PBR was RMB 1,484/mt, down 19.04% Y-O-Y, and the profits from producing PBR were negative from the second half of May to the first half of June.
China’s PBR output increased, while the net import volume dropped in the first half of 2022. In terms of Chinese-made PBR output, the Y-O-Y increase was mainly because China Zhenhua Oil did not produce PBR in the first half of 2021 and Shandong Huayu Rubber restarted production at the end of 2021. The PBR units at Nanjing Yangzi Petrochemical and Rubber remained shut. Sinopec Maoming Company shut its unit down in the first half of June, and the restart date is to be determined. As for China’s PBR import and export in the first half of 2022, the import volume showed a Y-O-Y decrease, mainly as the supply of Chinese-made PBR was steady, the recovery of downstream demand underperformed and the prices of PBR import remained high. China’s PBR export volume showed a Y-O-Y increase. On the one hand, demand in Southeast Asia was relatively favorable, and the prices in Southeast Asia were higher than the prices in the Chinese market. Therefore, players were active in export arbitrage. On the other hand, a country in Europe had changes in PBR exported resources, so some merchants chose Chinese-made PBR resources as a replacement to export to other countries and regions. According to SCI, in the first half of 2022, China’s PBR output rose by 8.57% Y-O-Y, while the net import volume is estimated to drop by more than 50% Y-O-Y. On the whole, the PBR supply pressure was not high in the first half of 2022.
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