Three Transitions in the Anticipated Synthetic Rubber Market

Synthetic Rubber surged at the end of August and the beginning of September

On August 31st night trading, synthetic rubber rose by 10%. On September 1st night trading, synthetic rubber rose by 12%. It increased by about 2200 yuan in two days.

Natural rubber rose by about 1085 yuan, whose rise was remarkable.

In our opinion, the possible reason for the market's rise from August 31st to September 1st could be the anticipation of partial synthetic rubber production suspensions and a lower inventory expectation within 1-2 weeks, which resulted in a rapid market rise. The rise of synthetic rubber led to the rise of natural rubber and 20 rubber.

Alternatively, it could be the market's expectation of macroeconomic policies, with an overall long position in commodities, choosing to go long on synthetic rubber, which in turn drove the rise of natural rubber. Similar commodities include aluminum oxide futures.

In the synthetic rubber industry, on August 31st, the ex-factory price of butadiene from Zhenhai Refining & Chemical, Shanghai Petrochemical, and Yangzi Petrochemical remained the same as August 30th, at 7600 yuan/ton. Weekly data shows that the average operating rate of domestic high cis-polybutadiene rubber devices increased by 5.15 percentage points to 67.49%.

Polybutadiene rubber units have basically resumed operation, and overall supply is sufficient.

In terms of natural rubber, many believe that compared to commodities such as copper, gold, iron ore, and thread, rubber prices are relatively low. El Niño may help reduce rubber production.

In our opinion, the reasons for the rise seem not to be solid. It is doubtful whether the prices can be smoothly transmitted downstream. Although the short-term sharp rise has caused significant disturbance in the market expectations, it has indeed provided producers with opportunities to sell their products and hedge against processing profits.

Supply device restart and conflicting demand lead to a change in synthetic rubber market expectations

Synthetic rubber surged significantly, but the synthetic rubber industry did not find a shortage of synthetic rubber inventory. However, the downstream tire industry has been showing dull performance and has difficulty digesting the sharp price increase in the short term. The industry lacks confidence in whether the prices can be successfully transmitted. Demand purchasing pace has slowed down, and there is a zero purchase for just-in-time demand.

As a result of the restart of Yangzi Petrochemical and the gradual restart of Sichuan Petrochemical's polybutadiene unit, market expectations have gradually reversed, and prices have been under pressure and declined.

After a significant surge in early September 2023, prices gradually retreated. Since late September, the overall trend in the price of butadiene rubber has been on the decline, with the decline in prices expanding in November.

The compression of industrial profits suggests that the synthetic rubber market may undergo further changes

Anticipated contraction on the supply side: Significant shrinkage in processing margins may lead private factories to reduce production loads.

Cost support: As prices decline, the supportive role of costs gradually becomes evident, potentially slowing down the rate of price decline.

In our understanding, the fundamental demand for butadiene appears to be subdued. The probability of a price reversal based on fundamentals is considered to be relatively low.

However, approaching the year-end, rubber tire factories may build up winter reserves. Against the backdrop of low inventory levels of butadiene rubber, there is a possibility of upward price fluctuations.