India’s share of synthetic rubber imports has been diminishing sharply in recent years from 77% in FY2014 to 47% in Q1FY 2019, following the rise in internal production. However, the import dependence will continue as certain forms of SR are exclusively imported, says K Srikumar, Vice President and Co-Head, Corporate Ratings, ICRA Limited.
In an interview to Rubber Asia, Srikumar says that ICRA expects the tyre tonnage demand to grow by ~6-8% over the next five years and hence the long-term demand outlook for SR shall remain healthy.
The ongoing tariff tussle between China and the US is unlikely to have a major impact on the SR industry as the global SR industry is marked by oversupply, he adds. EXCERPTS:

What are the factors driving the growth of the SR industry in India?

Nearly 70% of SR demand in India is derived from automotive (mainly tyres) segment and SR constitutes ~18-20% of total raw material composition in manufacture of tyres. Hence SR demand is significantly dependant on the performance of tyre industry.

What is the demand-supply position of SR? To what extent is India dependent on imports?

Historically, there has been a large gap between domestic SR supply and demand, and the share of imports in SR consumption was high at 47% during Q1 FY2019 (see Table). While the import dependence is high, its share has been diminishing sharply in recent years (from 77% in FY2014) with the addition of new capacities by domestic players and the imposition of anti-dumping duty (ADD) on SR imports in August 2017. The ADD was imposed on SBR 1500 and 1700 series (used in tyres) from European Union, Thailand and South Korea, for a period of five years.
India has also initiated a countervailing duty probe in August 2018 on rising imports of Fluoroelastomers (in non-tyre segment, the product is used in o-rings, shaft seals, hoses, gaskets etc) from China. While the share of imports is coming down, the import dependence will continue as certain forms of SR are exclusively imported.

What are the expansion plans of leading players in the SR industry?

Major players in the SR industry include Reliance Industries Limited, Indian Synthetic Rubber Pvt Limited, Apcotex Industries Limited. The overall installed capacities were nearly doubled in FY2014/15 and the industry currently operates at ~75% capacity utilisation (up from 45% in FY2016). While there is some headroom and minimal capex is underway, capital expansion announcements can be expected in the near to medium term as demand remains favourable.

Apart from tyre manufacturing, what are the new applications and end-use markets of SR?

SR finds large application in various industries given its ability to increase the strength of end-product and its enhanced resistance to ozone and abrasion. In the auto segment, SR is used in the tyre and non-tyre segments (e.g. o-rings, oil seal, drive coupling, haul-off pad etc).
SR also finds application in construction, footwear (shoe soles, heels etc), and industrials covering range of products like conveyor belts, carpet manufacturing, golf balls (core), roll coverings, cables, coatings, hydraulic hose, oil-resistant applications, pipe gaskets, packing material and other molded rubber goods and mechanical products.

There is a gradual rise in the share of SR vs NR in total rubber consumption. What could be its implications for the SR and NR industries?

Natural rubber and SR are substitutes in tyre manufacturing and hence the price movements of both the rubbers give the tyre makers some flexibility in applying formulation changes. While SR is increasingly consumed in developed markets, given the road infrastructure, weather conditions and quality variations, the substitution effect in India is limited at ~5% and accordingly, the same is unlikely to impact both the industries in a big way.

How could factors such as rising crude oil prices and falling NR production affect the SR industry?

SR is produced from various petroleum-based monomers. The feedstocks for the increasingly used SR – styrene butadiene rubber (SBR) – is styrene (derivative of benzene) and butadiene (processed through a naphtha cracker). Hence any sharp change in oil prices will influence the SR prices albeit with a time-lag; this lag is because of the lead time in conversion of crude derivative to SR, stocking levels across the chain and the inherent demand-supply position. To some extent, they also draw cue from movement in NR prices in the global markets, being a substitute.

Will the trade war between the US and China have any impact on SR industry?

The ongoing tariff tussle between China and USA is unlikely to have a major impact on the SR industry. For USA, the dependence on SR imports from China is low at ~3% and for China, the dependence is ~6%. With the global SR industry marked by oversupply, the impact of trade war is expected to be minimal.

What is the future outlook for SR industry?

ICRA expects the tyre tonnage demand to grow by ~6-8% over the next five years (FY2019-23) and hence the long-term demand outlook for SR shall remain healthy. On the supply front, while some capacities are still available, fresh capex announcements can be expected in the near to medium term.