Demand for Tire Deterioration Decreased Profitability of Synthetic Rubber Producers

Market participants said last week that synthetic rubber producers are under severe financial pressure due to the impact of weak tire demand and the heavy debt burden caused by investment expansion in recent years. Some synthetic rubber producers are already at risk, especially those whose business models rely heavily on the automotive industry. Synthetic rubber traders also support this view, and said that the profitability of synthetic rubber producers that are heavily dependent on the tire industry is continuing to deteriorate.

A styrene butadiene rubber producer said: “We have received warnings from shareholders that those companies that rely heavily on bank loans have solvency already full of risks.” Some companies should repay their debt before they 60% to 70% of EBITDA.

In March of this year, Germany's LANXESS announced that it will temporarily shut down its butyl rubber plant in Belgium and its EPDM plant in Dezhou, USA. A LANXESS company spokesperson said that the weak demand that began in the second half of 2012 has continued into 2013 and is affecting all business areas. Since the second quarter of 2012, demand for synthetic rubber has begun to decline, and tire manufacturers have been forced to cut production in the third and fourth quarters of the year.

Goodyear announced in January this year that the company will close its agricultural tire factory in Amiens, France. The judicial dispute over the plant’s retirement has been going on for 5 years, and the company’s 1,173 jobs are under threat. The Goodyear Group's leadership explained in an announcement that shutting down the factory is the only viable alternative after five years of negotiations. In addition, Bridgestone announced in November last year that it will lay off about 500 employees in its production sites in Spain and France.

However, IHS Chemical recently released the “Global Olefin and Elastomers” report, saying that as the automotive industry continues to face severe challenges, and raw material costs remain high, the tire manufacturing industry continues to slump, the global first-half styrene butadiene rubber (SBR) prices in the first half of this year Will still be weak. It is expected that with the recovery of auto demand in the second half of this year, styrene butadiene rubber will be driven out of difficulties, especially the demand for exports to Asia will increase.

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