By Chi Hongquan, Zhai Jian, Qi Guizhen, Sinopec Qilu Petrochemical

Isoprene rubber (IR), also known as synthetic natural rubber, displays better properties than natural rubber in water resistance and electrical insulation. It is a general-purpose synthetic rubber boasting good comprehensive properties.  

Falling output, low operating rate

China had nine IR producers in 2019. Yikesi New Materials, the largest domestic IR producer has two IR units, located in Qingdao, Shandong province and Fushun, Liaoning province, with a combined capacity of 70 kt/a, accounting for 26% of total domestic capacity. The second largest producer is Luhua Hongjin Chemical, operating two IR units with 65 kt/a of capacity, at Zibo and Maoming respectively, taking up 24% of the domestic total. The capacity growth posted a fast pace, but the plants’ operating rate was low, averaging at only 19% in 2015-2019. Domestic IR output reached 38.3 kt in 2019. Figure 1 shows China’s IR output VS operating rate in 2015-2019.

Figure 1  China’s IR output and operating rate in 2015-2019

China’s effective IR capacity totalled 180 kt/a by May 2020, due to the long idled units at Shandong Shenchi Petrochemical, Qingdao Yikesi New Materials and Sinopec Beijing Yanshan. Figure 2 shows China’s IR output VS operating rate in January-May 2020. The average plants’ run rate stood at around 16% during the period and IR output stood at 16.5 kt, down by nearly six percentage points year on year.

Figure 2  China’s IR output and operating rate in January-May 2020

Fewer imports, more exports

China’s major import origins of IR include Russia, Japan and the US. Figure 3 shows China’s IR imports and exports in 2015-2019. China imported 30.3 kt of IR in 2019, of which, 55% or 16.7 kt came from Russia, 41% or 12.4 kt from Japan. The US and other countries/regions accounted for the remaining 4%. In January-April 2020, China imported 9 kt of IR, down by 7.98% year on year.  

Figure 3  China’s IR mports and exports in 2015-2019

China exported 0.8 kt of IR in 2019, down by around 50% year on year. Its export volume accumulated to 0.4 kt in January-April 2020, a surge of around 61% year on year.

A deep fall in downstream consumption

In China, IR downstream consumption concentrates in the tyre manufacturing, shoes making, medicine gasket, conveyor, mechanical rubber products, adhesives and other industries. They respectively take a share of 65%, 15%, 11% and 9% altogether, as shown in Figure 4.

Figure 4  Distribution of China IR downstream consumption

Domestic IR consumption from the tyre industry decreased in 2019, due to lower tyre output and relatively low natural rubber prices. Demand from the shoes making industry was largely stable. The medicine industry posted a stable-to-firmer demand for IR but given the existence of other alternative feedstock, medicine gasket still registered a drop in IR demand. The overall IR consumption fell sharply in 2019, with the annual apparent consumption volume at around 67.8 kt, down by 10.7 kt year on year.

Limited supply and demand to become the major trend

Figure 5 shows China’s IR supply-demand situations. In 2015-2017, average annual growth rate of domestic IR output and consumption stood at 30.6% and 25.8%, respectively, while they posted an annual drop of up to 25.75% and 21.8% on average in 2018-2019. The overall limited supply resulted in a high reliance rate of IR imports at 43%. China’s annual IR imports averaged around 35 kt in the past five years.

Figure 5  China’s IR supply-demand balance in 2015-2019

Domestic IR output fell by 16.38% year on year in 2019, apparent consumption shrank by 13.63% year on year, imports reliance rate stood at 44.69% and the supply gap narrowed to 29.5 kt from 32.7 kt in 2018, due to a series of factors including low producers’ margins, long-term units’ shutdowns and softened end-user demand. Limited supply and demand will continue to dominate the domestic IR market in 2020.

IR prices to hover at low levels, likely to fall further

Figure 6 shows China’s IR price trend in 2019-2020. Domestic IR prices experienced narrow fluctuations for a long period of time in 2019, amid high overseas prices and maintenance shutdowns at a number of domestic plants. From January to May 2020, natural rubber prices slipped to below the RMB 10 000/t mark and refreshed record lows due to the COVID-19 outbreak, which weighed down the IR market and triggered declines in domestic IIR prices. Bearish end-user demand and low prices of the major substitute natural rubber are likely to impose further downside risks on IR prices.

Figure 6  China’s IR prices in 2019-2020

IR market to remain slightly short

China’s newly planned IR units after 2020 will have a total capacity of 170 kt/a, as shown in Table 1. Domestic IR capacity is expected to be largely stable in 2020 and output is likely to increase slightly from the 2019 level, at around 39 kt/a, up by 1.83% year on year.

The output growth rate is expected at 4.85% in 2020-2024, pushing up domestic IR output to around 47 kt in 2024.
The auto industry will remain the linchpin for IR consumption in 2020. Domestic all steel tyre output is likely to drop in 2020, to around 11 411 pieces. The semi-steel tyre output is expected to increase to around 46 245 pieces amid potential pick-up in demand. End-user demand may decline slightly in 2020, as shown in Figure 7. Domestic IR demand is predicted to reach around 68 kt in 2020, down by 3.27% year on year.

Figure 7  China’s IR supply-demand balance forecast in 2020-2024

Domestic IR demand is expected to increase in 2020-2024, with the average annual growth rate at 3.6% and demand to total around 78 kt in 2024. Domestic IR supply will remain tight in the coming five years.