Synthetic Rubber Market in China in 2015

By Yang Xiuxia, Sinopec

1. Synthetic rubber capacity grew considerably, demand picked up but the utilization rate of production units was still quite low

Synthetic rubber capacity in China increased from 2.83 million t/a to 6.03 million t/a during 2010-2015, with average annual growth of 16.4%. During the same period, consumption grew only 3.9% annually. New capacity in 2015 amounted to 520 kt/a. Capacity grew much faster than demand. With serious capacity surplus, the average operating rate was down to around 52% in 2015.  
The apparent consumption of synthetic rubbers in China was 4.35 million tons in 2015, an increase of 7.1% over the previous year. Consumption of major varieties increased, except for butyl rubber and neoprene (CR) whose consumption declined. Consumption of styrene-butadiene rubber (SBR) and butadiene rubber (BR) was higher by 1.7% and 4.9%, respectively. Consumption of styrene-butadiene block copolymers (SBCs), nitrile rubber (NBR), ethylene-propylene rubber (EPR) and polyisoprene rubber (IR) all grew by more than 10%.
Due to weak demand and oversupply, profitability of major synthetic rubber varieties in China made a decline overall, and the average operating rate also declined further. The gross profit levels of SBR and BR still floated in the vicinity of the breakeven point, and the average profit in 2015 was only slightly higher than in the previous year. The average operating rate of BR units was less than 50%. The average operating rate of butyl rubber units, IR units and EPR units was 20%-30%. The operating rate of IR units was a little higher than in the previous year, but was still below 20%.

2. Production and sales of automobiles kept increasing, but growth slowed down

The output of automobiles in China was 24.50 million pieces in 2015, an increase of 3.3% over the previous year, but growth was 4 percent points slower.
Automobiles made in China were mainly exported to emerging economies. Due to slack economies in these countries and regions, the export volume shrank. According to customs statistics, China exported 720 000 vehicles in 2015, a 19.4% drop from the previous year.

3. Growth slowed for both tire output and export volume

China produced 925 million tire casings (including some motorcycle tires) in 2015, a drop of 4.0% from the previous year, and the decrease margin was 4.1 percent points greater, according to data provided by the National Bureau of Statistics. The output of radial tires was 618 million pieces, a slight increase of 2.4% over the previous year, but the increase margin was 1 percent point lower.
China exported 256 million automobile tires in 2015, a drop of 7.1% from the previous year. It was the first year of decline in the export of automobile tires since China’s accession to the WTO. The export volume of passenger car/light-duty truck tires was 177 million pieces, a drop of 7.6% from the previous year – the first year of negative growth. The export volume of passenger bus/heavy-duty truck tires was 79.09 million pieces, a drop of 6.0% from the previous year. Figure 2 shows the monthly export of automobile tires in China in the last two years.
The proportion of China’s tires exported to the United States declined drastically in 2015, and the number of tires exported to Brazil slid. Other export destinations, Europe and the Middle East in particular, all took a larger proportion of the exports (see Figure 3 for details).

4. Export of shoes declined

The volume of shoes exported from China in 2015 was 9.87 billion pairs, a drop of 8.1% from the previous year, and the export value was US$51.11 billion, a drop of 4.2%.
The value of shoes exported to the United States was RMB87.17 billion, accounting for 25.3% of the total and being 1.7 percent points higher than the previous year. The value of shoes exported to the EU was RMB68.90 billion, accounting for 20% of the total and being basically unchanged from the previous year. The value of shoes exported to ASEAN and Latin America rose. Due to Russia’s slack economy, its demand for shoes was down and its proportion of the export value was 2 percent points lower than in the previous year. The proportion of total export value attributable to the Middle East and Hong Kong also declined.

5. Import of synthetic rubbers increased further, and the volume imported from Southeast Asia was much higher

Despite the drastic capacity growth of recent years, the volume of synthetic rubbers imported to China is still quite big, reaching 1.37 million tons in 2015, an increase of 7.2% over the previous year.
The import volumes of SBR and BR were respectively 397 kt and 249 kt, an increase of 21% and 20.4% over the previous year. Owing to SBCs’ relatively high profitability, the import of SBCs grew 40.1%. The import volumes of NBR and IR also increased by different extents. As a result of increased supply and weakened demand, less EPR, butyl rubber and CR were imported than in the previous year.
Korea remained the biggest source of synthetic rubbers imported to China, but the volume imported from Southeast Asian countries such as Thailand, Malaysia, Vietnam and Singapore increased remarkably.
The average annual growth of China’s synthetic rubber import volume in the last five years was 4.8%, according to customs data. The volume imported from neighboring countries and regions such as Taiwan province, Russia, Japan and Korea declined, with an average annual reduction of 3.6%. The volume imported from Taiwan province and Russia, in particular, fell 9%-10% annually on average. The volume imported from Southeast Asia kept increasing fast, with average annual growth exceeding 20% (see Figure 4 for details).
Synthetic rubber capacity in Southeast Asia has increased rapidly in recent years. Consumption there has grown quite slowly however. Tariff policies have also changed considerably since the founding of China-ASEAN Free Trade Area. New plants in Southeast Asia are all planned for export to China as the major target market. Investors in synthetic rubber units in the region are mostly world-famous Japanese and European companies. They mainly produce high-end products and are very competitive. Singapore has the greatest concentration of high-end synthetic rubber units. The volume of butyl rubber, SBR, BR and EPR imported from Southeast Asia has increased rapidly, with annual growth of 26% in the last five years – much higher than the growth of imports from other regions. The volume of SSBR imported from the region has increased rapidly (see Figure 5 for details).

6. Synthetic rubber export declined further, and neighboring countries and regions were still the major export markets

Starting from 2012 the volume of synthetic rubbers exported from China declined steadily. It came down to 142 kt in 2015, a drop of 11.7% from the previous year and 44.3% lower than the all-time peak in 2011.
Export destinations for China’s synthetic rubbers included 139 scattered countries and regions in 2015. Over a half of the total volume was exported to nearby countries and regions. Vietnam, Thailand, Hong Kong and Indonesia held leading places (see Figure 6 for details).
SBR, SBCs, BR and butyl rubber were the main varieties with a considerable export volume.

7. Prices of rubbers and raw materials fell further, and the profitability of synthetic rubbers was not as high as in the previous year

The price of butadiene (BD) in 2015 increased in the first half and fell in the second half. The average CFR price in Southeast Asia was US$875.2/t, a drop of 31.1% from the previous year. The average price in the domestic market was RMB7 242/t, a drop of 27.1%.
Similarly, the price of natural rubber in 2015 increased in the first half and fell in the second half. The average price (domestic full latex) for the year was RMB11 509/t, a drop of 14.8% from the previous year.
Prices of major synthetic rubber varieties and raw materials in China in 2015 were more than 20% lower than in the previous year. The reduction was more than 20% for both BR and SBR. Owing to fairly robust demand and relatively high profitability, the reduction for SBS was less than 5%. Figure 7 shows the price trends of rubbers and raw materials in the domestic market in recent years.

8. Prospects

The global economy will still see mild growth in 2016 – higher than in 2015. China’s economy has entered its “new normal”. Supply-side reform, transformation and upgrading are being accelerated in 2016, and GDP growth is expected to be around 6.7%.
The automotive sector will remain the major driver for the growth of rubber demand in China. In the first quarter of 2016, 6.59 million automobiles were made, an increase of 6.3% over the same period of last year, with one percent point faster growth. The output of sedans was 3.51 million pieces, a drop of 4.7% from the same period of last year. The output of passenger cars/buses was 2.31 million pieces, an increase of 31.5% over the same period of last year, and growth was 3.5 percent points faster, mainly because of a rapid increase of light-duty passenger car output, including SUV (the growth being 46.3%, 1.3 percent points higher than in 2014). The output of trucks was 0.77 million pieces, an increase of 1.2% over the same period of last year, versus a decline of 21.7% 2015. With an increase of investment and further growth of effective demand for electric vehicles and SUVs in the second quarter, the demand for automobiles in China is expected to be around 25.85 million pieces in 2016, an increase of 5.3% over 2015, with slightly faster growth.
The overall operating rate of the tire sector picked up in the first quarter of 2016. The output of tires from major enterprises increased slightly. China exported 59.30 million tires during January-March 2016, an increase of 9.4% over the same period of last year (the export volume in the same period of last year having dropped 9.5%) according to customs statistics. The export volumes of light-duty passenger car tires and passenger bus/heavy-duty truck tires were respectively 41.16 million pieces and 18.14 million pieces, increases of 8.5% and 11.6% over the same period of last year (the export volumes in the same period of last year having dropped 8.3% and 12.1%). It is expected that the output of tires in China in 2016 will be equal to or slightly lower than that of last year.
China exported 2.28 billion pairs of shoes in the first quarter of 2016, a drop of 7.7% from the same period of last year, and the reduction margin was 7.2 percent points bigger. It is expected that the shoemaking sector’s support of the rubber sector will be weaker in 2016.
Synthetic rubber capacity in China is growing much slower in 2016. New capacity introduced this year will be around 270 kt/a, and the total capacity at the end of the year is expected to be around 6.30 million t/a. The average operating rate of synthetic rubber units will go up a little.
The demand for synthetic rubbers is increasing further, but demand growth is slower. It is expected that the demand for synthetic rubbers will amount to around 4.50 million tons for the year, an increase of 3.1% over last year.
The rebound of prices for large-volume commodities such as crude oil will promote rising prices of basic raw materials and lead to a pickup of synthetic rubber prices in 2016. It is expected that the average price of synthetic rubbers in 2016 will be equal to or slightly higher than last year, but profitability will not improve notably.