Tougher European Union environmental targets for cars are pushing older synthetic tire models out of the market and causing prices to collapse, market sources said this week.
Last week, European lawmakers set the world’s toughest carbon emission targets for cars, requiring automakers to cut 27% of their vehicles’ carbon dioxide emissions by 2021.
The measures stipulate that 95% of all new cars sold in the EU can emit no more than 95 grams of CO2 a kilometer on average in 2020, with 100% of new vehicles needing to comply in 2021.
The current target for all new cars in the EU is 130 grams of CO2 a kilometer by 2015, with the target phased in from 2012’s 132g/km.
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The new ruling has triggered a further drop in prices for older tire grades such as the first generation solution styrene-butadiene rubber (SSBR) 5025 tires, which date from the 1990s, while the cash premiums for the newer, greener model, known as functionalized SSBR, are rising sharply.
The latest SSBR tire grade is more environmentally friendly because it features lower rolling resistance which in turn saves fuel.
“The functionalized SSBR grade is the creme de la creme of the market. In really high performance tires this is the grade, it is the one that you want. SSBR 5025 will just go out of fashion,” a trader said.
Platts last assessed SSBR 5025 at Friday’s 1630 London close at Eur1,850/mt FD Northwest Europe, down Eur5/mt on last week. SSBR premiums over its ESBR oil-extended equivalent 1723 grade were assessed at Eur490/mt Friday, down 35% or Eur275/mt from a Platts historic high of Eur765/mt on December 13 2013.
This week’s assessed level was the lowest since Platts began assessing SSBR in September 2012.
SSBR 5025 tends to price at a premium over the older emulsion grades, such as ESBR 1723, which date from the 1940s and are expected to be phased out completely.
According to sources, the original equipment tire market in Northwest Europe is already 100% SSBR-based, while in the replacement market SSBR represents around 75% of the passenger tire market, compared with around 25% for ESBR.
In contrast, prices for the newer, functionalized SSBR grade have been more stable and premiums have risen sharply over both its older generation counterpart and the emulsion grades with premiums above ESBR 1723 now seen at around Eur1,000/mt.
Platts does not assess the functionalized SSBR grade.
OLDER TIRES TO BE PHASED OUT BY GREENER GRADES
The global tire market is moving at a fast rate towards new solution technology and away from emulsion technology.
In Europe, Styron and Lanxess are the only producers that manufacture the latest, functionalized SSBR models with Versalis also working towards the latest generations. Russian producer Sibur was also working towards producing the latest generation of functionalized SSBR.
“It’s clear, the functionalized (SSBR) grade is made [more cheaply], the technical know-how is higher and it is vigorously protected by patents,” one trade source said, adding, “For us, oil extended (SSBR) is becoming a commodity and their premium is progressively reducing compared to (ESBR 1723).”
As the European tire market becomes more technologically advanced in response to both market needs and environmental pressures, the older tire grades have become commoditized and widely available.
“Why they are becoming commoditized? The market is becoming more qualified. They are doing so in order to fulfill the needs of tire-makers in order to comply with EU legislation in original equipment (tires). Tire-makers are aiming to bring their portfolio closer to (the automakers),” a producer source said.
This pressure for tire manufacturers is to adapt, to expect to increase the SSBR formulations going forward as customers will increasingly favor the latest tire grades.
“I see in coming years the pressure will be stronger. As our customers say that in their mid-term strategies they are likely to lower their formulations of non-functional (SSBR). They would like to get a trend that this product will become more commodity. ESBR will be more marginal,” a second producer said.
Source: Platts.com
