Rubber Market Outlook: Easing Tensions and Risks of Reversal Coexist
Due to lingering risks in the Middle East and the Strait of Hormuz's incomplete opening, butadiene supply remains tight in the short term. Our rough estimates suggest that a naphtha shortage in Asia could create a butadiene shortfall of approximately 126,000 tons per month. Under normal circumstances, the annual production-sales gap in China is around 100,000-150,000 tons per year, with net imports around 400,000 tons per year. Therefore, even considering downstream profit losses and reduced demand due to a weakening macroeconomy, a supply disruption exceeding two months will still result in a significant butadiene shortage.
If the monthly butadiene shortfall is distributed proportionally to annual production, the Asian butadiene rubber shortfall is estimated at approximately 38,000 tons per month. Coupled with a relatively severe profit inversion problem, the incentive to reduce production is stronger, with high-cis butadiene rubber potentially decreasing by around 35,000 tons per month, resulting in a supply gap of approximately 30,000 tons per month. Currently, domestic butadiene rubber visible inventory is only 41,000 tons, offering very limited buffer. Therefore, coupled with reduced Russian synthetic rubber supply, the domestic butadiene rubber supply is becoming increasingly tight.
Looking ahead, the situation in the Middle East remains highly uncertain, with negotiations stalled. While the US is increasing its troop deployments, Trump's repeated verbal pronouncements about "TACO" continue to disrupt market sentiment, and may simply be a one-sided "expectation management" tactic. Iran, on the other hand, may hold the Strait of Hormuz as a trump card, further increasing its demands in negotiations. Therefore, long-term risks remain in the situation.
The supply shortage of butadiene and butadiene rubber persists in the near term. The market has begun to gradually trade on the significant easing of tensions. If future negotiations proceed smoothly, the expectation of a recovery in Middle Eastern supply will lead to a continued decline in butadiene rubber and energy chemical stocks.