Chemical Conversations: Three European synthetic rubber producers to implement energy surcharges

Author Angie Joe, Vice President, Crude C4’s and Derivatives

Effective 27 October, specialty chemicals manufacturer Trinseo will implement an up to €500/t ($579/t) surcharge on plastics, latex bunders and synthetic rubber products produced at its European facilities. The fee will be applied to contract and spot volumes as terms allow.

The company cited tight supply conditions and rising costs as the reason for the surcharges. When energy and utility costs in the region rose to unprecedented levels, Trinseo said its costs for raw materials and services to support the manufacturing process also rose significantly.

High natural gas and power prices across western Europe have been putting tremendous pressure on butadiene (BD) derivative margins, in particular. Trinseo’s announcement follows two other regional rubber producers who implemented surcharges effective 1 October on term volumes. At this point, eastern European rubber makers had not yet pushed surcharges on contracts, but these could surface in the coming months. For a full list of synthetic rubber producers, capacities and locations, please see our Butadiene Analytics annual report.

The surcharges range from €85/t to more than €1,000/t. Average increases for polybutadiene rubber (PBR) and styrene butadiene rubber (SBR) are about €240/t. Regional October contracts for emulsion SBR 1502 was €1,772.50/t cfr; emulsion SBR 1712 was €1,692.50/t cfr while PBR was €2180/t cfr. The average surcharge would add an additional 10-12pc on top of the synthetic rubber contract price.

Some consumers may cancel or reduce orders, which would result in lower BD derivative operating rates and less BD demand. Given the outlook for natural gas and power, the surcharges could continue to rise as we approach the peak of winter months. At the moment, eastern European producers are not yet implementing surcharges on contractual volume. To an extent, this has allowed them to gain some market share in the region.

US vs Europe butadiene contract, fob basis

In 2021, the US has been regularly importing synthetic rubber from Europe on tight BD supply and strong demand. European rubber was more attractive given cheaper feedstock BD prices. The ongoing challenge has been high freight rates and delayed shipments. The surcharges only complicating matters further.

In October, rubber consumers were fully anticipating a price drop because of the €75/t ($65/t) drop in the European BD monthly contract price (MCP). Accounting for the BD MCP alone, Europe has a €474/t ($550/t) advantage over the US contract price. In previous months, this wide delta was enough to compensate for high container freight rates and shipment delays. Under current conditions, the European advantage could erode. In turn US rubber producers could bump up operating rates to supply the domestic market.

French and German exports of solution styrene butadiene rubber to the US accounted for almost a quarter of total volume, according to annualized trade data through August 2021.

To understand how this might affect the global BD forecast, please see our monthly Butadiene Outlook report.

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