Booming car sales in India

Mon, 5 Mar 2012 20:16:24 +0000

Booming car sales in India push up tyre demand and signal opportunity for Thai rubber exporters (Bangkok Post). Thai traders could see a huge opportunity to export rubber to India, where an economy growing at 7% annually is leading to increased car sales and lifting up demand for automotive tyres.

Carmakers have pledged US$6 billion to almost double annual production in the coming years as cars increasingly become within financial reach for India's expanding middle class. Passenger car sales last year grew by 4.24% to 1.95 million units, despite a generally downbeat mood among consumers worried about inflation and a steady series of interest-rate increases.

India is increasing its rubber output but the total will still fall well short of industry needs. The Rubber Board of India has estimated domestic production for the current financial year ending March 31 at a record 902,000 tonnes, an increase of 4.6% from the previous year. But the shortfall is likely to exceed 70,725 tonnes.

Meanwhile, the Automotive Tyre Manufacturers Association (ATMA) is lobbying for duty-free imports of 100,000 tonnes of natural rubber to bridge the gap between domestic production and consumption. "This could be a very good opportunity for Thailand to export more to India," said Adul Chotinisakorn, executive director and commercial counsellor at the Mumbai-based Thai Trade Center.

Mr Adul said that India's top rubber supplier at the moment was Indonesia, with $98.33 million worth of rubber exports (21,216 tonnes) in the first half of 2011. Thailand was next with exports of 16,466 tonnes worth $75.14 million. In free trade talks, India has put natural rubber on its negative list, taking into account the socio-economic significance of the commodity.

In December 2011, India imported 21,734 tonnes of natural rubber, up 57% from a year earlier. The world's fourth biggest producer, India imports rubber from Malaysia and Vietnam also. Costs for industries that use rubber are an increasing concern, however, since the top producing countries are not happy with the prices the commodity is fetching. Thailand, for example, in January approved a 15-billion-baht budget to buy unsmoked rubber sheet from farmers at 120 baht per kilogramme in a bid to prop up prices.

ATMA chairman Neeraj Kanwar said the tyre industry had passed through an extremely difficult phase of continuous and significant increases in the price of natural rubber and other raw materials. Since raw materials account for approximately 70% of industry expenditure, input cost pressure has resulted in severe erosion of net margins.

"We keenly look forward to the [Indian central government] budget to be announced on March 16 to address specific concerns of automotive tyre industry," he said. Natural rubber accounts for 45% of the total raw material cost for the tyre industry. Despite the recent softening of rubber prices, the average price in current financial year is still 10-12% higher than average prices in the previous financial year, according to ATMA.

"Despite the peak rubber production season falling between October and February and favourable weather conditions, the domestic availability of rubber is a key concern for the industry," said Mr Kanwar.

"With new capacity creation in the tyre industry and limited growth in rubber area under cultivation, the availability situation is feared to worsen in the foreseeable future." Since 2007-08, rubber consumption in India has outstripped production. The country has also become the second largest consumer of rubber in the world after China, while it still ranks fourth in production.

Mr Kanwar said the tyre industry was in the process of investing nearly $2.5 billion. To help increase competitiveness of the industry, the ATMA has asked for waiver of customs duties on raw materials that have no domestic production. These include butyl rubber, currently taxed at 5%, SBR or tyre-grade rubber (10%), EPDM (10%) and polyester tyre cord (5%).

Experts say there is little doubt about the long-term growth prospects of car demand in India _ Asia's third largest economy _ where a population of 1.2 billion dominated by young people with rising salaries and aspirations will likely make it the second-largest market in the world in 25 years. The total installed capacity of the automotive industry has risen to around 4.5 million cars, and could reach 6 million in a few years. Export growth is strong, but only around 550,000 cars are expected to leave the country's ports this fiscal year.

Capacity growth will outstrip demand growth for the next two to three years, according to research by Credit Suisse. "Utilisation will certainly fall as overall capacity rises, likely by around six percentage points in the coming years," said Credit Suisse automotive analyst Akshay Saxena.

Thai NR intervention stretches populism thin

Mon, 5 Mar 2012 20:14:28 +0000

A populist gesture by Thailand's government to prop up rubber prices could backfire by scaring off buyers and causing a buildup of stocks as rubber output rises this year (Reuters News). Not content with a multi-billion dollar rice intervention scheme, the government of the world's largest rubber producer told farmers it would also buy nearly 7 percent of the country's annual output this quarter.

If it gets the timing right, the 200,000 tonnes of rubber it plans to buy will prove a hit with the country's powerful farm sector and should not depress prices when it is eventually released back to the market. But failure could result in a costly nightmare for the government and its successors, leaving Thailand, which supplies more than 30 percent of global natural rubber output, with thousands of tonnes of unsold inventory.

The 15 billion baht ($490 million) scheme to buy unsmoked rubber sheet was announced in January, and has since lifted Tokyo rubber futures more than 20 percent, even though Bangkok delayed the intervention by a few weeks to March. "The idea sounds good, but don't forget that Thailand's rubber producers are quite fragmented, and there are a lot of smallholders as well, so we would need to see how quickly they can all work together in a disciplined fashion," said Kona Haque, soft commodities analyst with Macquarie Bank in London.

"If there's a notion in the market that the government will start selling the stocks, then clearly that's going to weigh on prices." Unlike the 400 billion baht rice-buying scheme, which fell short of its target of shoring up Thai white rice prices to $800 a tonne, the rubber intervention plan has set the market on fire even before it starts. The problem is Thai rubber output is also forecast to rise this year as trees planted at least five years ago begin producing latex, while tyre makers in top consumer China are happy to buy cheaper rubber from domestic inventories, which are near their highest since September.

Rubber, mainly used to make tyres, is a politically sensitive commodity in Thailand, where it provides a livelihood for around 1.3 million smallholders, mostly poor farmers who form a significant vote-bank for the government.

Since the government said it would intervene, the USS3 grade, or the rubber sheet farmers sell to rubber factories, has risen more than 20 percent to 110 baht, close to the price Bangkok wants its farmers to receive at 120 baht ($3.92) a kg. Under the buy-back scheme, Bangkok will offer cooperatives a soft loan to buy rubber from farmers.

Farmers can make a profit with prices above 80 baht per kg, but many are holding on to their produce in hopes that prices will return to the vicinity of a February 2011 record near 200 baht, said Somdet Khemasuk, chairman of the Rubber Growers Cooperatives Federation of Thailand. "That's why the government needs to push prices to as high as possible to avoid upsetting farmers," said Somdet.

Thailand's latest move has clearly benefited tyre grades in Asia, with the benchmark RSS3 grade rising as much as 7.5 percent to $4.30 a kg in February. Tyre grade prices in other main producers Indonesia and Malaysia have also risen. But aggressive offers from Thai sellers also suggest that Thailand is awash with stocks, even during the dry wintering season, which curbs the flow of latex. Better yields will drive Thai output up 4.7 percent to 3.740 million tonnes in 2012.

"With the market already this firm, I think it probably makes more sense for the government to have the threat of intervention looming in the background," said Abah Ofon, commodities analyst at Standard Chartered in Singapore. The intervention scheme allows cooperatives to buy USS3 from farmers and process it to export-grade RSS3 grade. The cooperatives will decide how long they will keep the stocks.

China is still in the market for tyre grades, but many local tyre makers have been buying rubber from bonded warehouses in Qingdao, which is often 5 U.S. cents a kg less than prices quoted in Southeast Asia. The Qingdao inventory, which makes up the bulk of China's rubber stocks, is not made public, but dealers put it between 200,000 and 250,000 tonnes, or about a month's consumption.

China's once-booming car market also cooled last year, growing just 5.2 percent, after rising 53 percent in 2009 and 33 percent in 2010. The forecast for this year's growth ranges from less than 5 percent to well over 10 percent. "Suppose rubber prices increase in Thailand, what will the Chinese buyers do? They will go to Vietnam or Indonesia to buy rubber at lower prices," said a regional industry official, who works closely with the Thai government.

Output in second-largest producer Indonesia may fall 1.4 percent to 2.923 million tonnes this year due to an expected marginal decline in the average yield, but Vietnam's output could rise 4 percent to 845,000 tonnes. "It's actually a foolish initiative by the government. The immediate objective is to cool the possible eruption of some political problems. I am not sure if the cooperatives have enough storage facilities," the official added.

Thailand has intervened in the past to lift prices. During the 2008 global economic crisis, it offered to buy up to 200,000 tonnes of rubber after the RSS3 export-grade fell to $1.10 per kg and the USS3 price hit a low of 30 baht. It bought hardly any in the end, after prices recovered quickly. Dealers said the policy can only be effective as long as Thailand has the funds to support domestic prices.

"When global stock-to-use ratios are very tight, the policy has been effective in establishing a floor without spending money. That will not always be the case, so you might say they have created a populist nightmare for themselves or future governments."

Lanxess to build second SR plant in Singapore

Fri, 2 Mar 2012 21:15:51 +0000

Strong demand, especially in Asia, for 'green', environmentally friendly tyres has clearly outweighed eurozone jitters, with Germany's Lanxess saying yesterday that it will go ahead to build a second synthetic rubber plant costing 200 million euros (S$333 million) here (Business Times Singapore). With engineering work already well advanced, it will break ground on the Nd-PBR (neodymium polybutadiene) facility on Sept 11, with the plant on Jurong Island expected to start up in the first half of 2015.

The German chemicals group has just sewn up feedstock and steam supply deals with Petrochemicl Corporation of Singapore and Tuas Power for the Nd-PBR plant - bringing its total investment here to more than S$1 billion. The green light for the project affirms what Lanxess chairman Axel Heitmann told BT last September, that despite the eurozone crisis, it intended to stay on course for the Nd-PBR investment. This was unlike the 2009 financial crisis, when Lanxess had to delay building its first 400 million euro butyl rubber plant here.

Construction of that first plant is on schedule, with the facility set to come on stream in Q1 next year. Both the synthetic rubber plants here are the group's largest worldwide. 'I am delighted to announce that it is now full steam ahead for the second largest investment project in our company's history,' Mr Heitmann said in Singapore yesterday at a contract signing with its suppliers.

The project's approval comes amidst robust demand growth of about 10 per cent per annum globally for environmentally friendly tyres, with the growth even more pronounced in Asia at 14 per cent annually, Lanxess said. Demand is further accelerated by tyre labelling - for factors like fuel efficiency, wet grip and rolling noise - being introduced worldwide.

Its Nd-PBR raw material is used in the threads and sidewalls of 'green' tyres, while its butyl rubber is used to make inner liners and inner tubes of high-performance tyres. Critical to Lanxess' latest Nd-PBR investment here was the availability of butadiene feedstock, which it has now firmed up with a long-term supply contract with PCS.

To supply Lanxess, PCS is itself proceeding to build a new downstream plant, PCS managing director Akira Yonemura said yesterday. BT earlier reported that its C4 plant will cost US$100-150 million, with a significant portion of the 100,000 tonnes per annum output going to Lanxess.

Lanxess has also sealed a deal with Tuas Power for steam for the Nd-PBR plant. TP Utilities is adding 650 tonnes per hour of steam capacity to its existing biomass-clean coal cogeneration plant on Jurong Island, which currently has 500 tonnes per hour of steam capacity and 100 megawatts of electricity generation capacity. The genco's president and CEO, Lim Kong Puay, said the steam supply to Lanxess will be for an initial 10 years, with an option to extend this.

Welcoming the latest Lanxess investment, Economic Development Board chairman Leo Yip said Singapore has provided feedstock integration opportunities and critical capabilities to support the German group's know-how and to enable it to grow its business from here.

Reliance Industries finalises a joint venture with Russian rubber giant Sibur in India

Wed, 22 Feb 2012 21:23:58 +0000

Reliance Industries (RIL) and Russian rubber giant Sibur, Eastern Europe's largest maker of petrochemicals, on Tuesday announced the formation of a joint venture company called Reliance Sibur Elastomers that aims to become the fourth largest supplier of butyl rubber - an input for tyres - in the world (The Economics Times, India). "In the first year of production the company could target a turnover of 2,500 crore," said Nikhil Meswani, executive director, RIL.

The company will produce 100,000 tons of butyl rubber per year at a new plant located in the industrial complex in Jamnagar, Gujarat that also contains the world's largest greenfield refinery. The JV will be the first manufacturer of butyl rubber in India, and will cater to the demand for synthetic rubber from the Indian automotive industry. That demand, a little more than 75,000 tonnes per year, is currently satisfied by imports.

"Our product will be significantly cheaper than the $4,000-5,000 per tonne cost of imported butyl rubber as it will be manufactured locally and our refinery feedstock will be used," added Meswani. Reliance will own 74.9% of the joint venture company with Sibur accounting for the rest. The JV will invest $450 million to construct the facility, which is expected to be commissioned by mid-2014.

The two partners have also signed a technology licensing agreement facilitating the use Sibur's proprietary butyl rubber production technology at the new production facility.
Sibur will develop basic engineering design for the facility and also train the JV's personnel at its production site in Togliatti, Russia. "We plan to cater to the large domestic demand and will use the existing supply contracts of Sibur," added Meswani. RIL had first announced its intent to form this JV in December 2010 and will now commission the facility in the second half of 2014.

Sumitomo plans extra SR plant in Singapore

Wed, 8 Feb 2012 21:12:43 +0000

Sumitomo Chemical, which broke ground this week on its latest Singapore investment, a US$120 million synthetic rubber plant - is already planning an additional plant to meet fast-growing demand for its solution styrene-butadiene rubber (S-SBR) (Business Times Singapore). This is because 'S-SBR is seeing rapid demand growth as a raw material for high-performance, fuel- efficient tyres amid increasingly strict worldwide regulations on automobile fuel consumption', it said.

Construction of its 40,000 tonnes per annum (tpa) S-SBR plant in Merbau sector of Jurong Island started last month, with the project scheduled for completion in June 2013. Sumitomo Chemical said that it made the decision in end-2010 to site the plant in Singapore 'because of its geographical advantage in supplying to rapidly growing Asian markets, and stable procurement of the raw material, butadiene, as well as tie-ups with the group's existing businesses in the region'.

Sumitomo Chemical the largest Japanese investor on Jurong Island. A Japanese consortium led by Sumitomo Chemical, for instance, owns a half-stake in Petrochemical Corporation of Singapore (PCS), which operates a S$5.4 billion petrochemical complex here. 'The company, expecting further demand growth, is working on a plan to build an additional plant to increase production,'Sumitomo said in a press release out of Tokyo, but gave no further details.

Its upcoming 40,000 tpa Singapore plant, which will start commercial operations in the fourth quarter of next year, will substantially boost its current domestic S-SBR output of 10,000 tpa. Sumitomo is the third Japanese S-SBR plant investment here - with Zeon Chemicals and Asahi Kaseei Chemicals being the other two. The Japanese projects follow synthetic rubber investments here by Germany's Lanxess, which is building a S$712 million, 100,000 tpa butyl rubber facility and which has committed to a second S$330 million Nd-PBR (neodymium polybutadiene rubber) plant.

Asahi Kasei is starting up its first-phase 50,000 tpa S-SBR plant in June 2013, and intends to double output here under a planned second phase expansion, while Zeon is planning a 35,000 tpa S-SBR facility on Jurong Island. All the synthetic rubber makers were drawn here by the ready access to raw materials, like styrene and butadiene, from the petrochemical crackers on the island.

Shell, for example, is supplying Lanxess with isobutene and raffinate 1 for its butyl rubber plant, while PCS is supplying Ca feedstock to the German group's planned second Nd-PBR plant here.