Development of IR in China Has Become Really Tough

By Xiao Ming

Global capacity has grown steadily with China as the major driver

With the completion of several polyisoprene rubber (IR) new units in China, the world’s capacity to make IR has increased steadily in recent years, reaching 963 kt/a by the end 2014. North America’s capacity was 115 kt/a, around 11.94%. The capacity in Central and East Europe was 484 kt/a, around 50.26%. Asia’s capacity was 360 kt/a, around 37.38%. The capacity in other countries and regions such as South Africa was 4 kt/a altogether, around 0.42%.  

The capacity in China is constantly increasing, but operating rates are quite low

By the end of December 2014, there were 10 IR producers in China with a combined capacity of 275 kt/a. China is the biggest producer of rare earth varieties of IR. In addition, lithium IR varieties and trans IR varieties are also made here. Yikesi New Material Co., Ltd. is the biggest producer at 70 kt/a capacity (two units, one in Qingdao and one in Fushun), around 25.45% of the national total. Luhua Hongjin Chemical Co., Ltd. comes next at 65 kt/a capacity, around 23.64%. Table 1 shows the IR producers in China in 2014.
The capacity to make IR in China is constantly increasing, but the operating rates of production units are on the decline. The average operating rate once reached around 50%, in 2011, dropped to 17% in 2013 and was down further to around 12% in 2014. The reduction of operating rates is closely related to the high price of raw materials, unreliable demand and a constant slide of natural rubber prices.
Despite all this, quite a few commercial IR production units will be constructed or expanded in China in the next few years. Major ones include a 50 kt/a unit of Liaoning Panjin Zhen’ao Chemical Co., Ltd., a 30 kt/a unit of Sinopec Fujian Refining & Chemical Co., Ltd., a 50 kt/a unit to be jointly constructed by Sinopec and SIBUR of Russia in Shanghai. See Table 2 for details. If these units are constructed or expanded on schedule, the total capacity of IR in China is expected to be over 570 kt/a in 2019. The capacity will be much in surplus and market competition will be very fierce by that time.

Table 1    IR producers in China in 2014

Producer    Capacity (kt/a)    Product variety    Major brand
Luhua Hongjin Chemical (Maoming) Co., Ltd.    15    rare earth    LHIR-60, 70, 80, 90
Luhua Hongjin Chemical (Zibo) Co., Ltd.    50    rare earth    LHIR-60, 70, 80, 90
Qingdao Yikesi New Material Co., Ltd.    30    rare earth    IR-70, 80
Fushun Yikesi New Material Co., Ltd.    40    rare earth    IR-70, 80
Puyang Linshi Chemical & New Material Co., Ltd.     5    lithium    IR-563
Sinopec Beijing Yanshan Petrochemical Co., Ltd.     30    rare earth    Nd-IR01, Nd-IR02
Shandong Shenchi Petrochemical Co., Ltd.     30    rare earth    -
Qingdao TPI New Material Co., Ltd.     15    trans    -
Ningbo Jinhai Chenguang Chemical Co., Ltd.     30    rare earth    -
Dushanzi Tianli Industrial Co., Ltd.     30    rare earth    -
Total     275        


Table 2    IR Units planned to be constructed or expanded in China

Producer    Capacity (kt/a)
Liaoning Panjin Zhen’ao Chemical Co., Ltd.    50
Sinopec Fujian Refining & Chemical Co., Ltd.     30
IR unit to be jointly constructed by Sinopec and SIBUR of Russia    50
Shandong Hongyang Chemical Technology Co., Ltd.     30
Shandong Yuhuang Chemical Co., Ltd.     30
PetroChina Lanzhou Petrochemical Co., Ltd.     50
Shandong Lijin Petrochemical Co., Ltd.     60


Table 3    Import and export of IR in China, 2005-2014  (kt)

Year    IR in primary form    IR plates, sheets and profiles    Total
    Import volume    Export volume    Import volume    Export volume    Import volume    Export volume
2005    11.3    0.6    5.1    0.1    16.4    0.7
2006    10.8    1.1    10.8    0.5    21.6    1.6
2007    14.6    0.8    38.6    0.8    53.2    1.6
2008    12.2    2.5    20.9    0.6    33.1    3.1
2009    11.4    0.7    24.7    0.5    36.1    1.2
2010    15.7    0.7    50.0    1.9    65.7    2.6
2011    5.3    0.5    44.3    1.6    49.6    2.1
2012    4.8    0.2    48.1    2.1    52.9    2.3
2013    5.1    0.3    34.7    2.3    39.8    2.6
2014    4.6    0.2    17.0    1.6    21.6    1.8


Import volume is down and import prices fluctuate

Almost all the domestic demand for IR was satisfied by imports before 2010. The import volume of IR in China was 53.2 kt in 2007 and reached 65.7 kt, the historic high in 2010. With the completion of more production units after that, the import volume declined gradually. In 2014, the import volume was 21.6 kt, a drop of around 45.73% from the previous year. While importing, China also exported small amounts of IR. The export volume was 0.7 kt in 2005 and reached 2.6 kt in 2010, an increase of around 136.36% over the previous year. The export volume was 1.8 kt in 2014, a drop of around 30.77% from the previous year. See Table 3 for details.
The import prices of IR in primary form in China increased constantly during 2005-2008. The average import price was US$1 584.10/t in 2005 and increased to US$2 926.55/t in 2008. With impacts from the global economic crisis, the average import price was down to US$2 364.98/t in 2009. It went up to the historic high of US$4 704.38/t in 2012 and then dropped to US$4 372.88/t in 2013. The average import price was US$4 521.47/t in 2014.

Consumption is declining and the prospect is not favorable

China consumed around 55 kt of IR in 2014, a drop of around 27.0% from the previous year. The self-sufficiency rate was around 60%. The balance was imported mainly from Russia, Japan and the United States. Import product varieties mainly included black stock SKI-3, white stock SKI-3S, white stock SKI-5PM from Russia and white stock IR2200 from Japan. The consumption structure was around 65% for the tire sector, around 17% for the medical sector and around 18% for shoe materials and others.
Consumption of IR in China is declining, mainly due to slack demand, which keeps the price of natural rubber low after a drastic downslide. The average market price of natural rubber in China reached RMB23 000/t in 2012. The price came down to RMB18 500/t in 2013 and fell further in 2014. The highest market price in 2014 was only RMB17 500/t and the price even dropped to RMB12 000/t once. By contrast, the market price of IR was around RMB17 500/t in the same year. IR has therefore lost its competitive position. The capacity surplus, the reduced operating rates and the downturn of profit rates in the tire sector downstream, as well as a drastic price reduction of major synthetic rubbers such as styrene-butadiene rubber and polybutadiene rubber are other reasons for the reduced consumption. The price of raw material isoprene monomer has stayed high and appears to have been independent of IR prices after October 2013. This leads to sustained high prices of IR produced in China, yet another factor in declining consumption.
The demand for IR is mainly determined by the patterns of its use in downstream sectors, the cost of raw material isoprene and the supply and prices of natural rubber. China is a big consumer of natural rubber. Due to geographical restrictions, however, there is little potential for a drastic output increase. IR is the synthetic rubber whose properties are most similar to natural rubber. It can replace 20% of natural rubber with no need to change production recipes in downstream sectors such as the tire sector. If the supply and the quality of IR are stable, the application technology is further improved and the price is considerably more competitive, the demand for IR will gradually increase. Judging from the demand in recent years and the expected development trend, the actual demand for IR in China in 2019 is likely to be 100-120 kt. The development prospect offers no basis for optimism.

IR market prices are closely related to natural rubber prices

The market price of IR in China is mainly determined by demand, the price of raw material isoprene, the price of natural rubber and the cost importing IR. The price of IR first went up and then came down in recent years, basically identical to the market trend of natural rubber. Prices increased steadily during 2005-2011, floated with some reduction in 2012 along with natural rubber, then came down to around RMB20 300/t in 2013 and finally dropped further to around RMB18 500/t in 2014. It is expected that the price of natural rubber will still float at a low level in the foreseeable future and the price of IR will also remain low accordingly.