FocusSoaring BD opens up arb window to Asia

16 January 2008 04:29  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Asia’s soaring butadiene (BD) prices have opened up an arbitrage window for deep-sea cargoes, with another 9,000 to 12,000 tonnes from Europe and the US Gulf expected to head towards the region in March and April, traders and buyers said on Wednesday.

So far, about 10,000 tonnes have already been procured earlier last month from Europe and the US Gulf at $1,680-1,700/tonne (€1,126-1,139) CFR (cost and freight) northeast (NE) Asia, to arrive to China at the end of January and mid-February.

BD spot prices  - which have skyrocketed by more than $300/tonne in the past month to hit $1,750/tonne – are still climbing due to dwindling stocks and rising demand, traders and producers said.

“Demand is strong while BD supply is very tight. There is no BD spot cargo available in Asia, hence the surge in prices,” a Korean trader said, adding that spot offers for the deep-sea material are now around $1,800/tonne for March arrival.

Although buyers’ resistance has been building up to the unabated upward price spiral, this has not stopped some traders and a major Korean producer to audaciously spike spot offers to $2,000/tonne for February shipments.

“Our spot offer is $1,950/tonne FOB (free on board) Korea for February shipment,” a company source at South Korea’s largest olefins producer, Yeochun Naphtha Cracking Centre (YNCC) said.

With intra-regional freight costs at around $60/tonne, this works out to at least $2,000/tonne CFR basis. The hefty hike has been ruled out as unworkable by downstream synthetic rubber producers who have retaliated by cutting operating rates.

Several derivative styrene butadiene rubber (SBR) and butadiene rubber (BR) makers, including Korea Kumho Petrochemical Co (KKPC), Indopol of Indonesia and TSRC of Taiwan, have already cut operating rates by 20-30% in response to the soaring BD.

Another major Chinese producer also plans to slash the operating rates of its 200,000 tonne/year SBR plant if the BD price continues to rise.

“We will shut down one 120,000 SBR line if the BD price stays above $1,700/tonne CFR China,” the Chinese producer said, adding that margins have been severely eroded by the rising BD costs and the unabated rise in the BD price is not sustainable.

“BD supply will ease when Titan Chemicals’ new 100,000 tonne/year BD unit comes on-stream at the end of this month and Yangzi Petrochemical’s new 100,000 tonne/year BD line starts up in March,” he added.

The sudden upsurge in the BD spot price was driven by the unexpected delay in the start-up of Titan Chemicals’ new 100,000 tonne/year BD unit in Pasir Gudang, Malaysia.

It was originally slated to start up in December but will now only commence commercial production at the end of January.

The persistently high naphtha price which prompted cuts in the operating rates at several cracker operators in China, Japan, Taiwan, Indonesia and Thailand plus the recent 21 December fire at Mitsubishi Chemical’s 476,000 tonne/year No 2 cracker at Kashima, Japan further worsened the situation.

Talk that Mitsubishi Chemical might be down for about three to four months sparked off a desperate scramble by traders and buyers in the global market for the precious dwindling BD cargo – thus opening up the arbitrage window to Asia.

($1 = €0.67)

By: Helen Yan
+65 6780 4359

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

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