FocusAsia BD soars but demand may taper off

07 January 2008 04:43  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Asia butadiene (BD) spot prices are at record highs due to tighter-than-expected supply, and high upstream crude and naphtha values but demand may start to taper off , producers and traders said on Monday.

Nymex crude futures, which hit $100/bbl (€68/bbl) last week, lifted naphtha to $890/tonne CFR Japan.

The bullish market sentiment and sudden surge in demand saw BD spot prices rising about $350/tonne to $1,750/tonne CFR (cost and freight) NE (northeast) Asia for end-January/early February shipments. The previous record was $1,650/tonne in September 2006.

However, demand is likely to wane in the run-up to the Chinese New Year in early February as the Chinese players retreat for the traditional one-week holiday celebrations.

Chinese New Year falls on 7 February this year and the Asian market usually starts to slow down ahead of the holiday festivities.

“Chinese buyers have secured sufficient material to cover February shipments and demand is likely to taper off now ahead of the Chinese New Year. We are now very cautious and will not import any more cargo into China in February,” a Chinese trader said.

“We will wait and see whether the downstream synthetic rubber sector can absorb any more price increases before we decide whether to import in March,” the trader added.

“We have no more spot available as we have sold out all our cargoes,” a company source at Formosa Petrochemical Corp (FPCC) said.

Meanwhile, South Korea’s largest olefins producer, Yeochun Naphtha Cracking Centre (YNCC) has settled its January contract at $1,500/tonne pipeline delivered, up about $228/tonne from its December settlement of $1,271.75/tonne pipeline delivered.

The delayed start up of Titan Chemicals new 100,000 tonne/year BD unit sparked off the surge in prices.

Titan’s later-than-expected start-up spurred a sudden increase in buying interest, with downstream styrene butadiene rubber (SBR) producers chasing dwindling spot cargoes in a sellers’ market.

Titan is now expected to deliver its first contract cargo end of January or early February, about a month later than originally scheduled.

The tight supply situation was further exacerbated by a fire which broke out at Mitsubishi Chemical’s 476,000 tonne/year No 2 cracker at Kashima, Japan on 21 December prompting market talk that it could be down for about three or four months.

On top of this unplanned outage, the reduction in the operating rates of several crackers in Japan and China added fuel to the fire.

A Japanese olefins producer, Idemitsu Kosan, slashed the operating rate of its 374,000 tonne/year cracker in Ichihara, Chiba prefecture to 50%, a company source said, adding that it experienced mechanical problems on 28 December and operating rates were subsequently reduced.

In China, domestic prices jumped to yuan (CNY) 16,000/tonne delivered, up more than CNY 1,000/tonne from the previous month following a recent Chinese government directive to divert naphtha to gasoline usage.

Five Sinopec cracker operators including Beijing Yanshan, Maoming, Qilu, Yangzi and Shanghai Petrochemicals subsequently cut down ethylene production by about 10,000 tonnes each in December in a move to boost gasoline supplies.

Two spot lots were subsequently sold at around $1,690/tonne FOB (free on board) Taiwan for end-January and early February loading. With intra-regional freight costs at about $60/tonne, these deals would work out to an equivalent of about $1,750/tonne CFR basis.

($1 = €0.68)

By: Helen Yan
+65 6780 4359

< previous article(ICIS Chemical Business podcast November 2, 2009)

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