Upturns and Downturns in China’s NBR Market in H2, 2017

In the second half of 2017, China’s NBR market shot up and then gave back those gains, largely as the supply was tight. This made the NBR market unique in the sluggish rubber market. Market prices of NBR were well above the normal levels. The price spread between NBR and SBR once reached around RMB 10,000/mt or higher.

China’s NBR market kept rising in the third quarter of 2017. From July, NBR producers in China were reported to conduct maintenance successively. The supply of Chinese-made NBR was expected to decline. On the imported NBR front, as China’s NBR market was depressed in the second quarter of 2017, and the profits from producing NBR dropped on the low prices, foreign suppliers cut their supply volume to China. Thus, resources of imported NBR were limited. Bolstered up by the tight product availability, NBR market prices continued to move upwards. NBR prices did not stop climbing until late September. By September 31, offers for NBR 3305E produced by PetroChina Lanzhou Petrochemical was quoted at RMB 23,000/mt, up by 46% from those at the end of June. 

However, there was certain to be something different during the National Day holiday. Last year, NBR prices surged from National Day holiday, but this year was different. The international butadiene market plunged during the holiday. Prices of relevant products launched a new round of decline after players stepped back into the market, and NBR prices were no different from those. And the early prices were inflated, the NBR market has been declining up to now. Prices of feedstock butadiene dropped, dragging down the rubber market to a great extent. In addition, NBR units in China resumed normal production after the holiday, so the tight supply was eased were somewhat. The support from the supply side was weakened. Up to October 25, offers for NBR N41E produced by PetroChina Lanzhou Petrochemical were in the range of RMB 18,200–18,500/mt (VAT included).

In the second half of 2017, the price increases in the NBR market were mainly contributed by the tight supply, while prices of feedstock butadiene and acrylonitrile were relatively low. Thus, the profits from producing NBR stayed at highs, and NBR producers enjoyed considerable profits. The gross profit of NBR producers averaged at RMB 1,570/mt from January to September 2017, while the average profit was only about RMB -58/mt last year. NBR producers turned losses into huge gains. Therefore, the production of NBR at Ningbo Shunze Rubber and IGSR improved somewhat, and sales increased noticeably. Meanwhile, profit status picked up obviously.

2017 was a good harvest year for NBR industry. Profits of NBR producers were considerable. Meanwhile, agents’ profits also reached unprecedentedly high levels, especially PtroChina Lanzhou Petrochemical’s agents. The ex-works prices of NBR at PetroChina Lanzhou Petrochemical grew at a slow pace. However, market offers kept trending up as agents were reluctant to sell the goods at lows on the tight product availability. The price difference between the dealing price and the ex-works price was as high as RMB 3,000/mt above, which was 6–10 times higher than the normal profit level. Unfortunately, with the large downward movement for NBR market prices since October, some agents made a loss successively.

Market prices of NBR have been inflated after sharp rises in the third quarter of 2017. Without any effective support, there is much room for the NBR price to go downwards. The support from the supply side is weakened as the tightness is eased somewhat. In the meantime, orders in downstream rubber products companies are moderate. End demand is weak. Although prices in upstream markets go up, the support from the cost side is limited for the time being. SCI estimates that China’s NBR market may edge lower in the coming period.